IBM cuts forecast as AI spending crowds out other IT

TL;DR:

• IBM cut its 2026 revenue growth forecast to 4-5%, down from more than 5%, after customers redirected budgets towards AI data-centre hardware.
• Revenue from its Z mainframe line slumped 42% in the second quarter, dragging infrastructure revenue down 7%.
• Chief executive Arvind Krishna said the missing large deals were “deferred, not destroyed”, with about a third since closing.

IBM has lowered its annual revenue outlook, days after a warning that corporate customers are funnelling money into AI-focused servers at the expense of software and mainframes wiped a quarter off its share price. The company also missed profit and revenue expectations for the quarter.

A crowding-out signal

The detail matters more than the headline miss. IBM’s Z mainframe, which processes transactions for banks and airlines, saw revenue fall 42% — a swing finance chief James Kavanaugh said was several times worse than expected. Krishna attributed the shortfall to “large capex deals at large clients” that slipped rather than vanished, insisting there was “no evidence of clients moving off a mainframe”. Software revenue still rose 5%, and one analyst framed the episode as an IBM-specific hardware problem rather than a sector-wide software downturn.

The wider worry is the one IBM’s results crystallise: the scramble for scarce AI servers, chips and networking gear is pulling spending away from everything else. That is the same dynamic showing up elsewhere — investors have been positioning for a squeeze on hyperscaler capital expenditure, and suppliers riding the build-out, such as UK chipmaker IQE, are the immediate winners.

What UK buyers should watch

For UK CIOs the read-across is practical. Budgets are not growing to accommodate AI; they are being reallocated, and legacy estates are bearing the cost. That tension sits awkwardly against the rising optimism among UK finance chiefs — enthusiasm for AI returns has to be funded from somewhere, and IBM’s quarter shows where the money is coming from.

Looking forward

Krishna’s claim that demand is deferred rather than destroyed will be tested in the second half, when the slipped deals are meant to close. If they do not, the narrative shifts from timing to a structural reordering of enterprise IT budgets around AI — with incumbents built on the previous order most exposed.