International Business Machines (IBM) stock is on track for its worst single-day loss since the 1987 Black Monday crash after the company posted broadly disappointing preliminary Q2 results.
The company reported $17.2 billion in Q2 revenue and $2.93 in earnings per share (EPS), notably below the consensus set at $17.86 billion and $3.02 per share.
Versus its year-to-date high, IBM shares are down nearly 35% at the time of writing.
Why IBM Stock Crashed on Tuesday
IBM came in below Street estimates primarily because of a stark underperformance in its hardware and system segments, particularly within its core z17 mainframe lineup.
Infrastructure revenue plummeted 7% year-over-year, far worse than the low-single-digit decline the company had previously forecasted.
In an open letter to investors, IBM chief executive Arvind Krishna admitted that the firm “faltered” because it failed to adapt quickly to rapidly shifting market conditions.
Several high-profile enterprises did not close before quarter-end as clients reprioritized IT spending toward artificial intelligence (AI) infrastructure, forcing IBM to miss expectations in Q2.
That said, IBM stock currently pays a lucrative dividend yield of 3.15%, which keeps it attractive for income-focused investors.
Technicals Recommend Against Buying IBM Shares
IBM’s preliminary results reignite the debate about the AI boom and what it means for the software sector.
While the firm’s Red Hat business grew 11%, the overarching enterprise trend signals the explosive demand for artificial intelligence infrastructure is coming at a massive direct expense to traditional software procurement pipelines.
Investors are also advised against buying the dip in IBM shares because they crashed below their key moving averages (MAs), indicating bears have taken control across multiple timeframes.
Moreover, the company’s relative strength index (RSI) also sits in the late 20s, reinforcing intense selling pressure.
What’s the Consensus Rating on IBM?
Heading into the Q2 preliminary release, Wall Street had a consensus “Moderate Buy” rating on IBM stock, with a bullish mean price target of about $301.
However, it’s reasonable to assume that downward revisions will follow the company’s admission that it hasn’t been fast enough in aligning with the AI era.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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