IBM Stock’s 26% Decline: Evaluating Its Dividend Potential for 2026

Key Points

International Business Machines (NYSE: IBM) faces a critical juncture after CEO Arvind Krishna acknowledged underperformance in a letter to shareholders, coinciding with the company’s preliminary second-quarter earnings report.

Krishna cited weaker-than-expected sales as customers redirected spending toward memory and storage products ahead of anticipated price increases. “These conditions require our teams to execute perfectly, and this quarter we faltered,” he wrote, noting delays in closing major deals contributed to the shortfall.

IBM stock plummeted 25%—the steepest single-day drop in its 115-year history—and has fallen 26% in 2026 so far. Despite this, the company had gained 35% in 2025 due to demand for its mainframe and server systems. IBM maintains a 3.1% dividend yield, significantly above the tech sector average, and has increased its dividend for 31 consecutive years.

Image source: Getty Images.

Is IBM’s Earnings Miss an Anomaly?

While current challenges stem from customer shifts to memory and storage products—benefiting competitors like Micron Technology—IBM’s long-term strategy centers on innovation. Tight DRAM and NAND supply is expected to ease by late 2024, potentially restoring revenue momentum.

The company is deploying its new z17 mainframes, powered by Telum II processors and Spyre Accelerator chips, to process AI workloads on-premises. Analysts anticipate these systems will drive growth, despite current quarterly headwinds.

IBM remains committed to quantum computing, targeting its first fault-tolerant quantum computer by 2029 with a $10 billion investment over five years.

The firm projects $17.2 billion in Q2 revenue and $4.8 billion in free cash flow, with full-year guidance of 5% revenue growth and $15.7 billion in cash flow. Maintaining these targets could signal a rebound in the second half of 2026.

Should You Consider IBM Now?

Investors monitoring IBM may view its sharp decline as a potential entry point, provided the company meets its growth and cash flow projections. However, the stock’s volatility underscores the importance of aligning investments with long-term risk tolerance.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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