IBM Insists AI Isn't Killing the Mainframe After Shocking Quarter — Mainframe Sales Plunge 42%

IBM officially reported its second-quarter earnings on Wednesday, and the news was as bad as the market had feared. The 115-year-old company still generated $17.2 billion in revenue and $2.2 billion in net earnings, but results fell well short of Wall Street expectations, sending shares down 25% in the worst single-day decline in company history.

CEO Arvind Krishna and the board had already taken the unprecedented step of warning investors ahead of time with a preliminary earnings letter. It flagged abysmal revenue in the company's critical "infrastructure" category and warned that profit margins would take a hit. Until this quarter, IBM's stock had performed well under Krishna's six-year tenure, buoyed by the AI data center boom.

The worst blow came from IBM's cash-cow mainframe business, which was down 42%. CFO Jim Kavanaugh explained on the earnings call that IBM earns $3 in software revenue for every $1 of mainframe hardware sold, making the mainframe decline a cascading problem across the business.

Both Krishna and Kavanaugh spent the call insisting this was a temporary blip. They said "tens" of customers who were due to buy new mainframes opted not to do so. Mainframes cost hundreds of thousands to millions of dollars, and with maintenance and software contracts, they generate many millions more in recurring revenue.

The same AI boom that lifted IBM's boat also sank it, Krishna explained. Instead of buying mainframes, clients bought other hardware. Enterprise hardware makers like Dell and HP have warned that rising component costs driven by AI build-out have forced them to raise prices, putting IT budgets under extreme pressure.

"When they were faced with that issue, then they decided to move budget to those areas where they were having that extreme price," Krishna said. He promised those customers will eventually buy their new mainframes and software contracts, adding that some already have this quarter.

"We see no evidence of clients moving off the mainframe," Krishna insisted. The tech industry has predicted the death of the mainframe for decades, and it remains to be seen whether AI will finally deliver the blow. IBM also lowered its full-year growth forecasts, meaning this quarter will have ripple effects through the rest of 2026.