Technology and consulting giant IBM (NYSE: IBM) fell short of the market’s revenue expectations in Q2 CY2026 as sales only rose 1.1% year on year to $17.16 billion. Its non-GAAP profit of $2.93 per share was in line with analysts’ consensus estimates.

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Company Overview

With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE: IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $69.1 billion in revenue over the past 12 months, IBM is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because finding new avenues for growth becomes difficult when you already have a substantial market presence. For IBM to boost its sales, it likely needs to adjust its prices, launch new offerings, or lean into foreign markets.

As you can see below, IBM’s sales grew at a mediocre 4.3% compounded annual growth rate over the last five years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. IBM’s annualized revenue growth of 5.3% over the last two years aligns with its five-year trend, suggesting its demand was stable.

IBM also breaks out the revenue for its most important segment, Software. Over the last two years, IBM’s Software revenue averaged 9.6% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, IBM’s revenue grew by 1.1% year on year to $17.16 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its products and services will see some demand headwinds.

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Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

IBM has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average adjusted operating margin of 18.2%.

Analyzing the trend in its profitability, IBM’s adjusted operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, IBM generated an adjusted operating margin profit margin of 17.3%, down 4.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth — for example, a company could inflate its sales through excessive spending on advertising and promotions.

IBM’s EPS grew at 6.5% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.3% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of IBM’s earnings can give us a better understanding of its performance. As we mentioned earlier, IBM’s adjusted operating margin declined this quarter but expanded by 4.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For IBM, its two-year annual EPS growth of 8.6% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q2, IBM reported adjusted EPS of $2.93, up from $2.80 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects IBM’s full-year EPS to grow 3.5% from $12.01 to $12.43.

Key Takeaways from IBM’s Q2 Results

All-important revenue missed, but IBM managed to report EPS in line with Wall Street's estimates. Overall, this quarter could have been better. The stock remained flat at $205.17 immediately following the results.

IBM may have had a tough quarter, but does that actually create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).