CNBC host Jim Cramer said Tuesday that IBM has fallen on the wrong side of a major corporate technology spending shift, following a 25% stock decline triggered by disappointing second-quarter results. The company preannounced that revenue, earnings, and software revenue growth fell short of Wall Street expectations ahead of next week's scheduled earnings release, with CEO Arvind Krishna acknowledging IBM 'faltered' as several large customer deals failed to close. Cramer attributed the shortfall to businesses increasingly prioritizing cybersecurity, hardware, and AI consumption costs while deprioritizing other technology projects, a trend he said positions IBM unfavorably despite its AI narrative.
IBM Preannounces Second-Quarter Earnings Shortfall
IBM shares tumbled about 25% after the company preannounced disappointing second-quarter results ahead of next week's scheduled earnings release. Revenue, earnings, and software revenue growth all fell short of Wall Street expectations. CEO Arvind Krishna acknowledged the company 'faltered' as several large customer deals failed to close during the quarter.
Cramer Identifies Three IT Spending Priorities Pressuring IBM
Cramer said the shortfall represents one of the clearest signs that companies are reshuffling their information technology budgets as artificial intelligence spending accelerates. He stated businesses are increasingly prioritizing three areas of IT spending: cybersecurity, hardware, and AI 'tokens' - the consumption-based costs associated with using AI models. 'Unfortunately for IBM, they have too many products and services that fall into the 'other types of spending' categories, even if they also have a decent overall AI narrative,' Cramer said on 'Mad Money.'
Cramer noted that IT managers are currently assembling budgets for 2027, and stated these three priorities will continue to dominate spending decisions. He said anything outside these categories 'has a real problem.'
Cramer Declines to Recommend IBM Stock Despite 3% Yield
Cramer praised Krishna for taking responsibility for the disappointing quarter and acknowledged IBM still has attractive long-term businesses, with the stock now yielding more than 3%. However, he said those positives do not offset concerns about continued pressure from shifting corporate technology budgets.
'I'm too worried about these trends to say that IBM's now safe to buy,' Cramer said. 'That's the new reality, and I have no idea when it will change, which is why I can't recommend IBM, not even after today's severe decline.' He added: 'I hope that IBM truly is just seeing its deals get delayed, and not canceled. But I can't tell you to buy a stock because I hope something is true.'
FAQ
Why did IBM stocks drop 25%?
IBM stocks dropped about 25% after the company preannounced disappointing second-quarter results ahead of its scheduled earnings release. Revenue, earnings, and software revenue growth all fell short of Wall Street expectations, with CEO Arvind Krishna stating the company 'faltered' as several large customer deals failed to close.
What is Jim Cramer's recommendation on IBM stocks after the decline?
Jim Cramer said he cannot recommend IBM stocks even after the 25% decline. He stated he is too worried about shifting corporate IT spending trends that prioritize cybersecurity, hardware, and AI consumption costs over other technology categories where IBM has significant product exposure.
