⚠ The Worst Day on RecordHigh threat

IBM (IBM) — threat to the moat

IBM lost a quarter of its value in one day on a quarter in which revenue grew, because the market priced the mainframe cycle as a franchise problem.

IBM's shares fell 25% on 14 July 2026, their worst day on record, after the company released preliminary second-quarter results1. The previous worst was 19 October 1987, when they fell 23.7%2; CNBC noted that its records of trading go back to 19683. The shares closed at $217.054. A law firm later described the fall as "erasing over $68 billion of its market capitalization in one day"5.

Worst one-day falls in IBM shares (%)-23.7%19 Oct 1987-25%14 Jul 2026CNBC, 14 July 2026; records from 1968
Worse than Black Monday.

The numbers themselves were not a disaster. Revenue was $17.2 billion, up 1%6, and operating earnings per share were $2.93, up 5%7. Analysts had expected $3.01 and $17.86 billion, according to FactSet8. What broke was the forecast: IBM Z revenue fell 42.0%9, Transaction Processing fell 8.1%10, and a week later IBM cut its full-year revenue growth expectation to four to five percent at constant currency11.

The threat is to trust as much as to earnings. Krishna wrote "this quarter we faltered" and that "numerous large deals failed to close on the timelines we expected"12. In September Hagens Berman announced it was investigating possible violations of securities law13. A company valued as a steady compounder loses more of its multiple on a surprise than on a slow quarter.

The letter itself offered a second reason for the shortfall that was not about hardware. Krishna wrote that "clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter"14. Taken with the capital shift toward memory, it describes a quarter in which buyers had other priorities. The shares have since traded as low as $199.19 and as high as $332.46 over 52 weeks15; at $225.51 they were about 32% below the high16. From the end of 2025 to September the market value fell about 23.3%17.

This is a high threat for the shares and a moderate one for the moat, because the clients did not leave. The number that will decide which is the mainframe. IBM Z revenue fell 19.5% in the first half of 202618; if the second half is no better, the July warning was the start of a trough rather than a single missed quarter.

The number that tests this threat
Reported
IBM Z revenue growth, first half
-19.5% (H1 2026)

The mainframe trough behind the July fall; a second half no better would mean the warning began a trough, not a one-quarter miss.

Source: IBM Form 10-Q, Q2 2026 ↗
References
  1. ReportedIBM's shares fell 25% on 14 July 2026, their worst day on record, after the company released preliminary second-quarter results.
    CNBC, IBM stock craters 25%, the worst day on record, after company issues second-quarter earnings warning. — July 2026 · publ. 14 July 2026 · source ↗
  2. ReportedThe previous worst was 19 October 1987, when they fell 23.7%; CNBC noted that its records of trading go back to 1968.
    CNBC, IBM stock craters 25%, the worst day on record, after company issues second-quarter earnings warning. — July 2026 · publ. 14 July 2026 · source ↗
  3. ReportedThe previous worst was 19 October 1987, when they fell 23.7%; CNBC noted that its records of trading go back to 1968.
    CNBC, IBM stock craters 25%, the worst day on record, after company issues second-quarter earnings warning. — July 2026 · publ. 14 July 2026 · source ↗
  4. ReportedThe shares closed at $217.05.
    Yahoo Finance, IBM shares log their worst day ever, falling 25% and ending the session at $217.05. — July 2026 · publ. 14 July 2026 · source ↗
  5. ReportedA law firm later described the fall as "erasing over $68 billion of its market capitalization in one day".
    GlobeNewswire, Hagens Berman announces investigation of IBM after the 14 July 2026 fall. — September 2026 · publ. 23 September 2026 · source ↗
  6. ReportedRevenue was $17.2 billion, up 1%, and operating earnings per share were $2.93, up 5%.
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
  7. ReportedRevenue was $17.2 billion, up 1%, and operating earnings per share were $2.93, up 5%.
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
  8. ReportedAnalysts had expected $3.01 and $17.86 billion, according to FactSet.
    CNBC, IBM stock craters 25%, the worst day on record, after company issues second-quarter earnings warning. — July 2026 · publ. 14 July 2026 · source ↗
  9. ReportedWhat broke was the forecast: IBM Z revenue fell 42.0%, Transaction Processing fell 8.1%, and a week later IBM cut its full-year revenue growth expectation to four to five percent at constant currency.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Software segment results and revenue categories. — Q2 2026 · publ. 23 July 2026 · source ↗
  10. ReportedWhat broke was the forecast: IBM Z revenue fell 42.0%, Transaction Processing fell 8.1%, and a week later IBM cut its full-year revenue growth expectation to four to five percent at constant currency.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Software segment results and revenue categories. — Q2 2026 · publ. 23 July 2026 · source ↗
  11. ReportedWhat broke was the forecast: IBM Z revenue fell 42.0%, Transaction Processing fell 8.1%, and a week later IBM cut its full-year revenue growth expectation to four to five percent at constant currency.
    IBM second-quarter 2026 results release, Form 8-K exhibit 99.1 - cash, debt, acquisitions, free cash flow, backlog and full-year expectations. — Q2 2026 · publ. 22 July 2026 · source ↗
  12. ReportedKrishna wrote "this quarter we faltered" and that "numerous large deals failed to close on the timelines we expected".
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
  13. ReportedIn September Hagens Berman announced it was investigating possible violations of securities law.
    GlobeNewswire, Hagens Berman announces investigation of IBM after the 14 July 2026 fall. — September 2026 · publ. 23 September 2026 · source ↗
  14. ReportedKrishna wrote that "clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter".
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
  15. ReportedThe shares have since traded as low as $199.19 and as high as $332.46 over 52 weeks; at $225.51 they were about 32% below the high.
    IBM (IBM) market data - previous close $225.51, 52-week range 199.19-332.46, dividend $6.76. — September 2026 · publ. 28 September 2026 · source ↗
  16. Moat Explorer calcThe shares have since traded as low as $199.19 and as high as $332.46 over 52 weeks; at $225.51 they were about 32% below the high.
    Moat Explorer calculation from IBM's reported figures ($ millions unless stated). Segment mix 2025: Software 29,962 / 67,472 = 44.4% of segment revenue and 9,920 / 16,364 = 60.6% of segment profit; Consulting 21,055 / 67,472 = 31.2% and 2,464 / 16,364 = 15.1%; Infrastructure 15,718 / 67,472 = 23.3% and 3,458 / 16,364 = 21.1%; Financing 737 / 67,472 = 1.1% and 521 / 16,364 = 3.2%. Segment revenue below reported revenue: 60,530 - 59,621 = 909 (2022); 61,860 - 61,229 = 631 (2023); 62,753 - 62,510 = 243 (2024); 67,535 - 67,472 = 63 (2025). Growth: revenue 67,535 / 62,753 - 1 = 7.6% (2025); 62,753 / 61,860 - 1 = 1.4% (2024); Q2 2026 17,162 / 16,977 - 1 = 1.1%; Software 25,011 / 23,629 - 1 = 5.8%, 27,085 / 25,011 - 1 = 8.3%, 29,962 / 27,085 - 1 = 10.6%; Software Q2 2026 7,761 / 7,387 - 1 = 5.1%; Consulting 20,884 / 20,058 - 1 = 4.1%, 20,692 / 20,884 - 1 = -0.9%, 21,055 / 20,692 - 1 = 1.8%, 21,055 / 20,058 - 1 = 5.0% over three years, Q2 2026 5,327 / 5,314 - 1 = 0.2%; Infrastructure 14,593 / 15,288 - 1 = -4.5%, 14,020 / 14,593 - 1 = -3.9%, 15,718 / 14,020 - 1 = 12.1%, Q2 2026 3,835 / 4,142 - 1 = -7.4%; Financing 737 / 713 - 1 = 3.4%, Q2 2026 186 / 166 - 1 = 12.0%; Transaction Processing 8,603 / 7,714 - 1 = 11.5% and 8,603 - 7,714 = 889 added 2023-2025; Hybrid Cloud 7,327 - 5,827 = 1,500 added 2023-2025; 11% to 13% of 7,327 = 806 to 952 a year; OpenShift 30% x 2.0bn = 0.6bn a year; Infrastructure Support 5,100 / 6,021 - 1 = -15.3% (2021-2025) and 4,800 / 5,100 - 1 = -5.9%; research and development 8,316 / 7,479 - 1 = 11.2%; Software segment profit 9,920 / 7,012 - 1 = 41.5%; Consulting segment profit 2,464 / 1,871 - 1 = 31.7%; financing receivables 15,193 / 11,738 - 1 = 29.4%; total debt 62.0bn - 50.9bn = 11.1bn since 2022. Shares: mainframe-linked revenue 10,618 + 8,603 + 5,100 = 24,321, and 24,321 / 67,535 = 36.0%; Hybrid Cloud 7,327 / 29,962 = 24.5% of Software; OpenShift 2.0 / 24.6 = 8.1% of software ARR; June 2026 ARR 24.6bn / 2025 Software revenue 29.962bn = 82.1%; revenue outside the United States 40,643 / 67,535 = 60.2%, so about 60%; research and development 8,316 / 67,535 = 12.3% of revenue; quantum more than 10bn / 5 years = more than 2bn a year, and 2.0 / 8.316 = 24%, about a quarter; goodwill 67,717 / 151,880 = 44.6% of total assets; goodwill plus intangibles (67,717 + 11,391) / 151,880 = 52.1%; other assets 151,880 - 67,717 - 11,391 = 72,772; HashiCorp goodwill 4,684 / 7,433 = 63.0%; Confluent goodwill 7,238 / 11,602 = 62.4%, other net assets 11,602 - 7,238 = 4,364; stock-based compensation 1,685 / 16,364 = 10.3% of segment profit; Kyndryl spin 55,179 / 73,620 - 1 = -25.0% of 2020 revenue, about a quarter. Margins: Software Q2 2025 2,296 / 7,387 = 31.1%; Consulting Q2 2025 562 / 5,314 = 10.6%; Infrastructure Q2 2026 835 / 3,835 = 21.8% and Q2 2025 965 / 4,142 = 23.3%; total segment profit Q2 2026 4,092 / 17,110 = 23.9% and Q2 2025 4,003 / 17,009 = 23.5%; Financing Q2 2026 108 / 186 = 58% (reported 58.0%); pre-tax margin 10,328 / 67,535 = 15.3%; Global Technology Services 2020 117 / 27,039 = 0.4%; gross margin Q2 2026 9,907 / 17,162 = 57.7% and Q2 2025 9,977 / 16,977 = 58.8%. Red Hat: 7,327 / 35,100 = 20.9% of consideration; pre-tax at the Software margin 0.331 x 7,327 = 2,425, and 2,425 / 35,100 = 6.9%, about 7%; after a 21% tax 6.9% x 0.79 = 5.5%; revenue needed for 8% after tax 0.08 x 35,100 / (0.331 x 0.79) = 10,738, about 10.7bn, which is 10,738 / 7,327 = 1.47 times 2025 revenue: about 3.2 years at 12.5% growth, 4.4 years at 9% and 7.8 years at 5%. Cash and capital: acquisitions plus dividends 2025 8,294 + 6,255 = 14,549, and 14,549 / 14,734 = 98.7% of free cash flow; first half 2026 acquisitions 10.5bn / free cash flow 4.8bn = 2.2 times; dividends 6,255 / 10,593 = 59.0% of net income; Consulting backlog 31.9bn / 21.055bn = 1.5 years of revenue; remaining performance obligations 71bn - 68bn = 3bn lower in six months; pension risk transfers 16 + 6 + 1.2 = 23.2bn; defined-benefit obligations 14,460 + 29,872 = 44,332 against plan assets 18,073 + 26,733 = 44,806; free cash flow guidance 14.7bn + 1.0bn = 15.7bn. Further: revenue per employee 67,535 / 264.3 thousand = about 255,500 dollars; Q2 2026 Software share of segment profit 2,502 / 4,092 = 61.1%; first-half Software 14,813 / 13,722 - 1 = 8.0%; amortisation of acquired intangibles 2,166 / 1,627 - 1 = 33.1%; free cash flow 14.7 / 6.5 = 2.3 times (2021-2025); Q2 2026 Transaction Processing 2,208 - 2,030 = 178 lower, Data 1,782 - 1,499 = 283 higher, Hybrid Cloud 1,998 - 1,796 = 202 higher, Transaction Processing above Hybrid Cloud by 2,030 - 1,998 = 32; share price 225.51 / 332.46 - 1 = -32.2% from the 52-week high; first half 2026 Hybrid Cloud 3,903 / 3,483 - 1 = 12.1%, Transaction Processing 3,963 / 4,037 - 1 = -1.8%, Hybrid Infrastructure 4,678 / 4,512 - 1 = 3.7%, Infrastructure Support 2,483 / 2,515 - 1 = -1.3%, Automation 3,692 / 3,467 - 1 = 6.5%, Data 3,256 / 2,736 - 1 = 19.0%, Financing 406 / 357 - 1 = 13.7%, Strategy and Technology 5,829 / 5,702 - 1 = 2.2%, Intelligent Operations 4,770 / 4,680 - 1 = 1.9%; Strategy and Technology Q2 2026 2,933 / 2,920 - 1 = 0.4%; Infrastructure Support 2021 share 6,021 / 14,188 = 42.4%; Infrastructure 2020 pre-tax margin 1,654 / 14,533 = 11.4%; Consulting 2020 pre-tax margin 1,034 / 16,257 = 6.4%; buybacks 2015-2019 4,609 + 3,502 + 4,340 + 4,443 + 1,361 = 18,255; Hybrid Cloud 7,327 / 67,535 = 10.8% of revenue, about a tenth; acquisitions 2023 to June 2026 5.1 + 3.3 + 8.3 + 10.5 = 27.2bn; HashiCorp net of acquired cash and securities 7,433 - 929 - 331 = 6,173; ARR 24.6 - 21.3 = 3.3bn from end-2024 to June 2026; net interest excluding Financing 1,312 / 984 - 1 = 33.3%; 2024 signings 25,103 / 20,692 = 1.21, about 21% above revenue; generative AI book 12.5 - 9.5 = 3.0bn added in Q4 2025; EMEA growth gap 14.2 - 9.0 = 5.2 points; revenue 57,350 / 73,620 - 1 = -22.1% from 2020 as filed to 2021. Trailing twelve months to June 2026: revenue 67,535 - 31,519 + 33,079 = 69,095; net income 10,593 - 3,249 + 3,381 = 10,725; P/E 212,460 / 10,725 = 19.8; P/S 212,460 / 69,095 = 3.07 - revenue mix, segment shares and concentration. — FY2015-Q2 2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in IBM's Annual Reports, Forms 10-Q, results releases and market data; operands shown in the source line.
  17. ReportedFrom the end of 2025 to September the market value fell about 23.3%.
    IBM market capitalisation at each December year end, 2015-2025, and today (stockanalysis). — 2015-2026 · publ. September 2026 · source ↗
  18. ReportedIBM Z revenue fell 19.5% in the first half of 2026; if the second half is no better, the July warning was the start of a trough rather than a single missed quarter.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Infrastructure and Financing segment results. — Q2 2026 · publ. 23 July 2026 · source ↗
Sources
Generated September 28, 2026