IBM’s stock fell about 8% in pre-market trading on Thursday, as the company’s “prudent” guidance failed to meet investors’ expectations for an upward revision. Although IBM’s first-quarter results exceeded Wall Street’s forecasts and the company reaffirmed its full-year outlook, management failed to dispel market concerns that artificial intelligence could impact its traditional businesses. The company reiterated its 2026 outlook — revenue growth of more than 5% at constant currency and a $1 billion increase in free cash flow — without raising it, even though an acquisition was completed ahead of schedule. This conservative stance was interpreted by some investors as a sign that management, even with new business integration, remains uncertain about fully offsetting the potential impact of AI on traditional operations.
The earnings report showed that for the quarter ended March 31, IBM’s software revenue rose 11% to $7.05 billion, slightly above the expected $7.02 billion; total revenue increased 9% to $15.9 billion, surpassing the analyst consensus of $15.7 billion; adjusted earnings per share came in at $1.91, also beating expectations.
Facing this situation, Wall Street investment banks showed a clear divergence in attitude. Wedbush maintained an “Outperform” rating but lowered its price target from $340 to $320. Analysts led by Dan Ives noted that despite IBM’s strong performance and growing AI demand, the company has adopted a prudent strategy in the face of macroeconomic headwinds, reducing the price-to-earnings multiple to reflect a roughly $600 million dilution impact from Confluent and weakness in the consulting business. IBM Chief Financial Officer James Kavanaugh said on the earnings call that given the stage of the year, maintaining existing guidance remains a prudent move. The analysts also pointed out that macroeconomic uncertainty could lead companies to reduce project spending, making IBM more hesitant to raise guidance. Nevertheless, the Ives team still believes IBM is well-positioned to ride the wave of AI demand, that its diversified portfolio is gaining traction, and that its productivity flywheel could help expand margins.
In contrast, Morgan Stanley showed mild optimism. The firm maintained an “Equal-Weight” rating and slightly raised its price target from $215 to $225. Analysts led by Erik Woodring said the results were largely in line with expectations — a slight beat in the first quarter, second-quarter guidance in line, and full-year outlook unchanged. They believe there is nothing fundamentally wrong with the big picture, but that investor expectations had been building for upward pressure on the full-year forecast, which did not materialize this quarter.
