Oppenheimer withdraws IBM's $350 target price: Software growth is only half of expectations, stock price will remain volatile in the short term.

Oppenheimer withdraws IBM's $350 target price: Software growth is only half of expectations, stock price will remain volatile in the short term.

Oppenheimer downgraded IBM's rating on Wednesday and withdrew its $350 price target. Analyst Param Singh judged that the bullish logic would take "much longer" to play out, expecting the stock price to remain rangebound in the short term.

On July 15, Wall Street investment bank Oppenheimer pointed out in a research report that without large-scale acquisitions or substantial replenishment of major orders, IBM will face significant challenges in achieving double-digit growth in its software business in 2026-2027.

The institution also noted that the trend of IT spending shifting towards hardware is expected to benefit server and storage equipment manufacturers, but similar IT budget cuts may pose short-term risks to infrastructure software vendors, putting pressure on IBM’s multiple business lines.

WallStreetCN mentioned that on July 14, IBM stated in a release that preliminary second-quarter revenue was $17.2 billion, below analysts’ average expectation of $17.9 billion. Infrastructure business sales saw a particularly sharp decline, dropping 7%.

The company disclosed that in late June, customer capital expenditure direction shifted dramatically, with some budgets moving rapidly from software and mainframe domains to hardware resources such as servers, storage, and memory, which were in tight supply. This caused several major deals to fail to close on schedule.

Impacted by the second-quarter earnings warning, IBM's stock plunged 25% in a single day on Tuesday, wiping out more than $700 billion in market value, marking the largest single-day drop since at least 1968. On Wednesday, it fell another 2.71%, bringing its market cap down to $19.85 billion.

IBM CEO Krishna rarely admitted operational mistakes. He stated in the earnings explanation:

The team was not fast enough in adapting and acting, which caused many large transactions to fail to close as planned.

Software growth halved versus expectations, all three business lines under pressure

IBM forecast preliminary second-quarter total revenue of $17.2 billion, up only 1% year-over-year, lower than the market’s expectation of $17.9 billion.

Software business revenue grew 5% year-over-year, missing Oppenheimer's expectation of 12%. Management attributed this to weak demand for transaction processing software, poor performance of mainframe-related software portfolios, and some large orders being delayed until after the end of the quarter.

Red Hat accelerated growth by 11% quarter-over-quarter, while HashiCorp and Confluent performed strongly, but this was insufficient to offset the drag from core business.

Infrastructure revenue fell 7% year-over-year, worse than the expected drop of 5%; consulting business revenue was flat year-over-year, slightly below the expected increase of 1%. Non-GAAP earnings per share were $2.93, missing market expectations.

However, IBM maintained its 2026 full-year guidance, expecting revenue to grow by over 5% at constant currency and free cash flow to increase by approximately $1 billion year-over-year. Since the beginning of the year, net cash flow from operating activities was $7.8 billion and free cash flow was $4.8 billion.

Pressure across the technology software sector

IBM's plunge is not an isolated event. Traditional enterprise software giants have all been under pressure this year.

Oracle has fallen 33% this year, Microsoft 20%, and Accenture as much as 50%.

Oppenheimer’s downgrade further reinforces market expectations that the valuation logic for traditional software players will be restructured in the era of AI.

Corporate capital expenditures are increasingly concentrating on AI infrastructure hardware, causing traditional enterprise software and consulting businesses to face systemic demand-side pressure.

For IBM, how to find new growth anchors amid this wave of transformation remains the core challenge for management.

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