IBM Shares Tumble 7% After Mixed Q1 Results Stoke AI Disruption Fears

Quick overview

Tech giant IBM beat revenue and earnings estimates, but slowing software growth rattled investors already on edge about artificial intelligence competition.

IBM Q1 Earnings Beat Estimates, But Markets Remain Unimpressed

Shares of International Business Machines fell more than 7% in after-hours trading on Wednesday, even though the firm reported first-quarter results that beat Wall Street’s expectations for both revenue and earnings. The way the market reacted showed how worried people are about IBM’s future in a time when AI is moving so quickly.

IBM’s revenue for the quarter was $15.92 billion, which is a 9% rise over the same time last year and more than the $15.62 billion that analysts expected. Adjusted earnings per share were $1.91, which is well above the $1.81 that analysts had predicted. But neither number was enough to calm investors, who have seen the stock drop almost 15% since the start of 2026. This is a big change from the S&P 500, which has risen approximately 4% over the same time.

Software Slowdown Fuels AI Anxiety

The worry is about IBM’s software division, which has the highest profit margins and is a critical sign of the company’s long-term health. Software sales rose 11.3% to $7.05 billion, a slower rate than the 12.2% growth seen in the previous quarter. Even if the number was slightly higher than what analysts had predicted, the slowdown was enough to make people worry that AI technologies are starting to take business away from traditional enterprise software and consulting services.

IBM’s consulting segment, which made $5.27 billion, only rose 4% year over year and fell short of projections. This is another evidence that clients may be putting off or changing their expenditure as they think about how AI will change the way they do business.

Anthropic’s COBOL Move Casts a Long Shadow

Since February, when Anthropic said that one of its AI tools may help businesses update COBOL code, the programming language that powers many of IBM’s mainframe systems, the company has been under a lot of criticism. After such news, IBM’s shares dropped 13% in just one day. The business has pushed back, with Rob Thomas, the senior vice president of software, saying on LinkedIn that “AI strengthens the mainframe case, it does not weaken it.”

IBM’s Mainframe Strength Offers a Bright Spot

At least there was real growth in IBM’s infrastructure business, which climbed 15.2% to $3.33 billion. This was due to a 51% increase in sales of its Z mainframe hardware and continuing strong sales of the z17 model. According to CFO James Kavanaugh, customers who use IBM’s Watsonx Code Assistant, an AI-powered tool for modernizing mainframes, are adopting mainframes more quickly. He says that generative AI is helping the business grow instead of being a danger.

Leadership Holds the Line on Guidance

On the call after the earnings report, CEO Arvind Krishna seemed sure of himself when he said that AI was “a tailwind” for IBM and repeated the company’s full-year guidance: sales growth of more than 5% in constant currency and a $1 billion rise in free cash flow. Krishna also talked on the geopolitical instability caused by the U.S.-Iran war. He said that IBM had its best growth in the Middle East in decades during the quarter and that the company could handle more disruption if trade channels in the region stayed closed.

Confluent Deal Closes Early, Margins in Focus

In mid-March, about two months ahead of schedule, IBM also finished buying the data streaming platform Confluent for $11 billion. Management claimed that the purchase should increase operating pre-tax margins by around 1%.

The Road Ahead for IBM Stock Investors

Investors don’t seem to be convinced right now. IBM has to prove that its decades of business ties and its own AI portfolio can hold the line against a new generation of disruptors as AI competition grows and software development slows.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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