I'm long calendar $IBM -1/15/27 c470 || +1/21/28 c470. Preannouncement clearly not great for IBM; however, if you believe Arvind's explanation, it supports the continued robustness of the GAI infrastructure trade. I will probably hold until the short call expires and reevaluate.
Can't win them all.
---------------
(Bloomberg) -- IBM shares are plummeting on Tuesday, after the IT services company reported preliminary revenue for the second quarter that fell short of the average analyst estimate. The company saw clients shift their quarterly capex spend in June and noted numerous large deals failed to close on time.
“What played out was worse than our expectations,” CEO Arvind Krishna wrote in a letter to investors
Read more: IBM Shares Plunge After Sales Miss, CEO Says ‘We Faltered’ (1)
Shares down 23% in premarket trading; should the stock close with a drop of that magnitude, it would represent its biggest one-day drop on record Software and IT stocks are lower on the news: Accenture -7.2%, ServiceNow -7.1%, Salesforce -5.1%, Adobe -5.0%, HubSpot -6.7%, Microsoft -2.6%; In Europe, SAP and Capgemini also drop
See also: Software Stocks Sink as IBM Miss Delivers ‘Devastating Blow’
ANALYST COMMENTARY
Bloomberg IntelligenceThe prelim results “reaffirm our view that discretionary IT spending is worsening and will likely be the main theme across most software companies when they report results”
“IBM’s customers shifted their spending away from software, consulting and infrastructure toward memory and other hardware purchases, which should continue in 3Q, given there’s no respite in rising memory costs”
Click here for the report
Barclays (overweight, PT $350)The news “is not a thesis changer,” as “all of these lower numbers are related to a shift in short-term investments away from the mainframe to other areas”
“The key debate we can see emerging now is if the mainframe is facing more headwinds from AI and hence, the impact to numbers, or if this is just timing as there are currently other priorities due to high component price increases for distributed systems,” and at the moment, “we are in the latter camp”
Vital Knowledge“The IBM update will deliver a devastating blow to software/services stocks as investors will worry about the capex pivot negatively impacting the whole industry, but the race to secure hardware raises its own set of worries: how much double or triple ordering is occurring in the supply chain, artificially inflating backlogs/demand?”
Mizuho SecuritiesThe news shows that “money that might have gone to consulting projects or other IT work got diverted into AI hardware,” a sign that AI capex is “crowding out other spend,” writes Daniel O’Regan, managing director of equity trading at Mizuho
PRELIMINARY SECOND QUARTER RESULTS
Prelim revenue $17.2 billion, estimate $17.86 billion (Bloomberg Consensus)
Prelim Software Rev up 5%
Prelim Infrastructure Rev Down 7%
Prelim Consulting Rev Flat, up 1% at Constant Currency
COMMENTARY AND CONTEXT
While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization
In the last few weeks of June, IBM saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases
Company also cites shortfall in performance and the associated software stack, primarily in Transaction Processing
While performance in the quarter was below expectations, co has conviction in the strength of portfolio and the strategic transformation of business
To remedy challenges this quarter, company is undertaking new initiatives and accelerating others, all to improve our results going forward
