To The Moon

A 25% fall in a company like IBM is not an ordinary earnings reaction.

It is the market suddenly questioning an entire investment story.

IBM’s preliminary second-quarter revenue came in at approximately $17.2 billion, up only 1% year over year and below expectations of around $17.86 billion. Adjusted earnings of $2.93 per share also fell slightly short of forecasts.

But the numbers alone do not fully explain such a violent sell-off.

The greater concern was the message behind them.

IBM said customers had prioritised spending on servers, storage and memory amid supply constraints and anticipated price increases. That redirected technology budgets away from some software and infrastructure purchases.

Management also acknowledged execution failures. Several significant deals did not close as expected, and IBM admitted it had not adapted quickly enough to changing customer priorities.

That leaves investors with two very different interpretations.

📉 The 

bearish argument

This may be more than one disappointing quarter.

If companies continue directing more of their technology budgets toward AI infrastructure, chips, networking equipment and cybersecurity, IBM could experience slower growth across parts of its traditional business.

Its preliminary figures already showed the divide:

* Software revenue increased 5%

* Consulting revenue was flat

* Infrastructure revenue declined 7%

The sell-off spreading into other software stocks also suggests investors may be reconsidering whether parts of the sector remain too expensive as AI rapidly changes enterprise spending priorities.

IBM must now prove that this was a temporary timing and execution problem rather than evidence that customers are permanently shifting their budgets elsewhere.

📈 The bullish argument

A 25% decline may already price in an extremely negative outcome.

IBM still has valuable enterprise relationships, recurring revenue, Red Hat, hybrid-cloud capabilities and long-term opportunities in automation, artificial intelligence and quantum computing.

Large corporate contracts can also move between quarters. Delayed deals are not necessarily lost deals.

Software revenue still grew despite the broader disappointment, suggesting that IBM’s entire business has not suddenly collapsed.

There is also a possibility that the current spending disruption is temporary. Customers rushing to secure scarce infrastructure may eventually return to postponed software and consulting projects once immediate hardware requirements are satisfied.

⚖️ My view

I would not rush to buy IBM simply because it is suddenly cheaper.

A falling share price does not automatically create value when the market is questioning both management execution and the company’s ability to benefit from the AI investment cycle.

However, I would not assume one disappointing preliminary announcement means IBM’s long-term strategy is finished either.

For me, IBM has moved from a potential “buy the dip” opportunity to a “prove-it stock.”

Before becoming bullish, I would want to see:

✅ Evidence that the delayed deals are closing

✅ Stabilisation in consulting and infrastructure demand

✅ Continued software and Red Hat growth

✅ Healthy margins and free cash flow

✅ Better execution from management

✅ A convincing explanation of how IBM captures AI spending rather than losing budgets to it

IBM is scheduled to release its complete second-quarter results on July 22, which should provide more detail about margins, cash flow, segment performance and the outlook for the remainder of the year.

The wider market question may be even more important:

Is this simply an IBM-specific execution failure, or are investors beginning to rotate away from traditional software companies and toward businesses offering more direct exposure to AI infrastructure?

IBM may eventually prove that the market overreacted.

But after a collapse this severe, patience may be more valuable than immediately attempting to catch the falling knife.

What is your move?

🟢 Buying the dip

🟡 Waiting for the full results

🔴 Avoiding IBM completely

$IBM(IBM)$ $IGV(IGV)$

Not financial advice. This is my personal market analysis and opinion.

Adz