IBM crashes after early earnings – the market didn't buy the explanations
IBM released its second-quarter results and the stock is plummeting by about 25% in pre-market trading, dragging down the entire software sector with it.
The $IGV ETF is down more than 4.5% 🔴 $NOW stock is down about 9% 🔴 $CRM stock is down about 7% 🔴 $PLTR stock is down about 5% 🔴
The reason is not just the numbers, but mainly the fact that the market is losing confidence in the company's ability to meet its guidance. 🚩
Revenue totaled $17.2 billion, an increase of only 1% compared to last year. ❌
Key points: ⬇️ ➖ Software revenue increased by 5%. ➖ Consulting activity remained almost unchanged. ➖ The infrastructure division fell by 7%. 🔴 ➖ Gross margin eroded to 57.7%. 🔴 ➖ Free cash flow since the beginning of the year totaled $4.8 billion. 🔴 ➖ Adjusted earnings per share increased by 5% to $2.93, while GAAP earnings decreased by 2%. 🔴
But the real story is in the unusual letter from CEO Arvind Krishna to investors. ✉️
According to him, the company estimated that revenue from the new z17 mainframe series would weaken slightly after the product launch, but in reality, the impact was much more significant. 🔖
Many customers postponed deals and redirected their investment budgets to purchasing servers, storage systems, and memory due to fears of price increases and supply shortages, while simultaneously, a wave of cyber threats changed customer priorities. 🛡
The CEO also admitted that IBM did not react quickly enough to the change in market conditions, and as a result, many large deals were not closed on time.
Despite the disappointment, IBM highlighted several positive points:
🔣 Red Hat accelerated its growth rate to 11%. 🔣 The acquisitions of HashiCorp and Confluent contributed to strong growth. 🔣 The distributed infrastructure sector jumped by 37% and reached a historical high, with an order backlog of approximately $500 million. 🔣 Consulting activity continues to benefit from demand for artificial intelligence projects. 🔣 The company continues to expand operating profit margins through efficiency programs.
IBM also outlined its future growth engines: 📈
🟢 The launch of Lightwell, an AI-based security platform with an investment of $5 billion, which is already being adopted by some of the world's largest banks and financial institutions. 🟢 An investment of more than $10 billion in quantum computing over the next five years. 🟢 The establishment of a dedicated factory for quantum chips, supported by CHIPS Act grants from the U.S. government.
The problem is that the market is looking at the present, not at 2029. ❌
When a company's management explains that customers changed priorities, that cyber issues interfered, that investments were postponed, and that deals were not closed on time – the meaning for investors is simple:
The guidance was not accurate, and performance did not meet expectations. ❌
Investors may still believe in the potential of artificial intelligence, Red Hat, and quantum computing, but this report reminds us that even a company with a long-term vision must deliver strong performance in the current quarter.
The market loves dreams, but it only rewards companies that also know how to wake up on time. ⚠️
Food for thought: 💡 In the CEO's letter, he explains that 'many customers postponed deals and redirected their investment budgets to purchasing servers, storage systems, and memory due to fears of price increases and supply shortages'
What do you think this means for the chip sector? ❓