IBM's Q2 revenue rose 1% YoY, with 2026 revenue guidance of 4‑5% and free cash flow expected to grow $1 billion, but a software slowdown leaves its five‑year stock outlook uncertain.
International Business Machines reported second‑quarter revenue of $17.2 billion, up just 1% year over year, while software revenue growth slowed to 5% and infrastructure revenue fell 7%. Management now expects constant‑currency revenue growth of 4%‑5% for 2026, down from the more than 5% outlook given in April. CEO Arvind Krishna attributed the slowdown to client spending shifts and delayed large deals.
Despite the top‑line weakness, IBM projects free cash flow to increase by about $1 billion in 2026, bringing the full‑year total near $15.7 billion. The company raised its quarterly dividend to $1.69 per share—the 31st consecutive increase—yielding just under 3% at the current share price of roughly $230, which is about 30% below its June record high.
Analyst Daniel Sparks estimates the stock could trade in the low $300s in five years, driven mainly by the expected cash‑flow growth and dividend, without requiring a software resurgence. He notes IBM’s quantum roadmap targets the Starling fault‑tolerant quantum computer for 2029, and the company has secured a $1 billion CHIPS Act award matched by $1 billion of its own funding for a quantum wafer foundry.
The outlook remains uncertain because software growth, a key driver of IBM’s valuation, has slowed, and the market may price the stock based on the modest 1% revenue growth seen in the second quarter. Future software performance and the materialization of quantum revenue are the primary unknowns.