The stock of IBM (IBM) closed down 25% on July 14, the worst one-day decline in the company’s 115-year history, after the technology giant issued a warning about its upcoming earnings.
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IBX: an alternative to margin or options on IBMThe earnings pre-announcement clearly spooked investors and caused them to run for the exits. IBM stock was the worst-performing equity on the day and led to a flat finish for the blue-chip Dow Jones Industrial Average of which IBM is a constituent.
The hardware, software, and consulting provider issued preliminary financial results for the April through June period that fell well-short of Wall Street’s expectations. IBM announced earnings per share (EPS) of $2.93 on revenue of $17.2 billion. Those results were below forecasts for earnings of $3.01 a share and revenue of $17.86 billion.
IBM’s annual recurring revenue. Source: The Fly
IBM’s CEO Apologizes
IBM CEO Arvind Krishna blamed the poor results on weakness in the software and infrastructure business. He said that IBM’s clients shifted money during the quarter to hardware purchases, notably memory chips that are critically important to running artificial intelligence (AI) applications.
“We saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases,” Krishna wrote in a letter to shareholders. He apologized, saying: “These conditions require our teams to execute perfectly, and this quarter we faltered.” IBM is scheduled to report its full second-quarter financial results on July 22.
Is IBM Stock a Buy?
The stock of IBM has a consensus Moderate Buy rating among 18 Wall Street analysts. That rating is based on 12 Buy, five Hold, and one Sell recommendations issued in the last three months. The average IBM price target of $303.83 implies 40% upside from current levels. These ratings could change after IBM delivers its full financial results later in July.
