IBM Rebounds After Warning, but Quantum Pivot Needs Time

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TechChartMaster specializing in key technical indicators, chart patterns, and trend analysis. With a focus on decoding market signals and providing actionable insights
 

•  31 Jul 2026
 

$IBM IBM fell to 199 dollars two Thursdays ago, 40% below its record high of 332 dollars at the beginning of the month, after CEO Arvind Krishna issued a warning one week before the company reported results. Krishna said large customers were significantly shifting budgets away from traditional software and mainframes to stockpile artificial intelligence hardware, servers, and memory chips. The stock has since recovered, and Krishna has tried to reassure investors with promises surrounding quantum computing. However, entering that field could take several years, and it is uncertain whether Krishna himself will remain at the company until then.

Following Wall Street commentary and making investment decisions based on that commentary has become an impossible task. On the same page, between The Wall Street Journal and the Financial Times, investors can find completely opposing interpretations of every issue. Wall Street is also trying to understand exactly what President Trump is attempting to accomplish and where he is leading the country. My view, which I have repeated since Trump was elected to his first term, is that he is pursuing the policies of a businessman managing a country as its chief executive.

Nothing comparable has occurred in a democratic country because successful businesspeople do not enter politics anywhere. Trump is also not an ordinary businessman, but someone who from a young age knew how to lead himself toward success, even through bankruptcies. It therefore seems to me that he may be the only person capable of bringing peace to the troubled world in which we live and perhaps also to our region. In my opinion, the Iranians will soon discover that they are not as successful at conducting negotiations as they and the media believe.

The market is displaying unusual strength, apparently driven by the wisdom of the crowd and its belief in Trump, the technology revolution, the economic evidence supporting that revolution, and the American dream. Trump, the revolution, and the dream continue to push the equity indices to record highs. Even the Russell 2000 is at an all time high. The strength suggests that institutional flows continue to favor the broader market despite uncertainty surrounding policy and individual sectors.

One important sector continues to stand out for its weakness, and that is healthcare. Its pharmaceutical, biotechnology, generic drug, and medical equipment indices have disappointed relative to the leading equity indices, particularly biotechnology and medical equipment. The sectors stocks are signaling investor concerns about the future even though the companies continue to generate strong profits in most cases. Since the beginning of the year, my impression has been that healthcare, with an emphasis on medical equipment and biotechnology, is currently the most interesting area.

IBM fell after Krishna warned that major customers were significantly redirecting their budgets away from traditional software and mainframes to accumulate artificial intelligence hardware, servers, and memory chips. Krishna said IBM had underestimated the scale of changes in capital spending by large corporate customers. Those changes were caused by a severe global shortage and rising prices for semiconductor components such as high bandwidth memory. Companies are therefore purchasing physical data center infrastructure aggressively, and those panic purchases have reduced technology budgets and forced companies to postpone large software deals.

IBM software is the companys primary revenue engine, making the deterioration particularly damaging. Krishna disclosed that sales of the companys enterprise mainframes collapsed 42% during the quarter. That decline also led to a 9% drop in transaction processing software. The figures disrupted earnings momentum and raised concerns about the durability of IBM software growth.

Krishna added to investor anxiety by announcing that IBM management was lowering its full year software growth expectations. The company reduced its 2026 software revenue growth forecast to between 6% and 8%. Earlier in the year, IBM had confidently projected double digit growth. The reduction weakened the growth narrative that had supported the stock near its record high.

Krishna attempted to calm investors in a CNBC interview by saying that only 2% of IBM software portfolio was directly vulnerable to artificial intelligence. However, he also raised another problem by noting that legacy systems are aging and highly exposed to AI disruption. That renewed Wall Street concern that advanced artificial intelligence models developed by competitors could eventually replace traditional enterprise software. The statement revived broader concerns about investing in software companies.

Two developments are surprising. The first is that the stock did not fall much further and instead rose during the five trading days following the collapse. The second is Krishnas conduct. A person who developed professionally during the information revolution and understands IBM history and the October 1987 stock collapse should have recognized that this form of disclosure would cause the shares to fall sharply.

In 1987, CEO John Akers similarly failed to understand that investors would not accept retrospective admissions of responsibility. Analysts raised a central question during the weekend following the warning: how could Krishna have been unaware of these problems at the beginning of the month when he presented such optimistic forecasts. Fortunately for Krishna, IBM, and the broader market, his predecessor made his mistake during a terrible economic environment, while the current economic environment is entirely different. My view is that Krishna will not survive despite his success in turning the company around since becoming chief executive.

The gains in IBM shares since last week are, in my opinion, a response to what many investors viewed as an overreaction to the decline. After all, this is IBM, the Big Blue company that has emerged from major crises in the past. Understanding IBM current position first requires understanding what kind of company it is and how it generates revenue. The rebound reflects relief after forced selling rather than confirmation that the underlying operating problems have been resolved.

Krishna discussed the companys position with Christopher Mims, a technology reporter at The Wall Street Journal who is considered one of the best in the field. Krishna emphasized that nearly every time someone pays for something with a credit card, the approval is processed by an IBM system. IBM mainframes, servers, and software remain dominant in the core functions of insurance companies, banks, airlines, and other Fortune 500 companies. In other words, IBM is what is described as a company with a solid financial backbone.

The company is now aiming at the quantum computing market, but the opportunity could take several years to develop. Krishna has used quantum computing to reassure investors after the warning and the decline in the stock. The company has already reported that, for the first time, a quantum computer solved a complex problem and also proved that the answer was correct. The question is whether that long term opportunity can support multiple expansion before the pressure on traditional software and mainframe demand is resolved.

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