IBM Stock Gains Premarket: Analyst Says AI Narrative Isn’t Broken, Calls Mainframe Weakness A Short-Term Setback

• IBM said clients are shifting tech spending from software to AI servers. 
• Morningstar analysts believe IBM clients are more likely to delay rather than cancel their mainframe upgrades.
• Retail sentiment for IBM flipped to ‘extremely bullish’ as of early Wednesday, up from ‘bearish’ the previous day.

IBM shares rose 0.7% in premarket trading on Wednesday, clawing back a small portion of the record losses from the previous session after the company issued weak preliminary results, citing a faster-than-expected shift in client spending from software to AI servers.

IBM expects second-quarter revenue to rise 1% to $17.2 billion, with 5% growth in its software business and a 7% decline in its infrastructure business. The bottom-line figures were rather concerning, with the gross profit margin expected to drop by 100 basis points to 57.7%.

IBM said the weakness was largely in its mainframe business and “saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of ​expected price increases.”

IBM’s warning sent several software stocks, including Salesforce and ServiceNow, lower on Tuesday.

Analyst Says It Is A Delay, Not Cancellation

Morningstar issued a report on the matter and said the sell-off appeared exaggerated, maintaining its $260 price target.

“We believe clients are more likely to delay, rather than cancel, their mainframe upgrades. Following the successful launch of IBM's z17 mainframe, the product became a major driver of IBM's outperformance in 2025,” the research firm said in its report.

“Today's update focuses on short-term performance that does not warrant changing our long-term outlook. Shares currently look moderately undervalued,” it said, adding that IBM's long-term AI opportunities come from its hybrid cloud and data software, rather than mainframe-related offerings.

Retail, Analyst View On IBM

On the other hand, Oppenheimer downgraded the IBM stock to ‘Perform’ from ‘Outperform,’ according to an alert on TheFly. Just before the preliminary earnings release, HSBC had downgraded the stock to ‘Reduce’ from ‘Hold with a price target of $191, down from $231.

On Stocktwits, the retail sentiment for IBM flipped to ‘extremely bullish’ as of early Wednesday, from ‘bearish’ the previous day, while the 24-hour message volume rose nearly 3,000%.

“IBM $VIX $UVXY Do not underestimate IBM losing 30% in one day. Expect the contagion to spread across many causes ‘the event,’” a trader wrote.

Another trader said, “$IBM glad I didn't pull the trigger at island bottom 264 . But for sure will [watch] for bounce here.”

With Tuesday’s selloff, IBM stock is now down 25% year to date.

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