Being squeezed out by the AI core track? Wall Street bulls turn against each other, advising retail investors not to blindly "buy the dip" in IBM (IBM.US)

Notice that IBM (IBM.US) has just experienced a trading day that makes people have to re-examine this stock. The stock plummeted by 25.2% in a single day, evaporating billions of dollars in market value, marking the worst single-day drop in the company's recent history. Such a significant drop not only hurt everyone who bought near the highs, but also forced the market to reassess the true value of IBM. Subsequently, the market tone became more severe. The previously bullish Ovumheimer then conducted a downgrade, fueling the emotional shift. This downgrade followed a sell-off triggered by the financial report, turning a bad day into a moment that looked more like a turning point. As a result, a disturbing question now hangs over this stock: is the Ovumheimer downgrade following the sharp decline after the IBM financial report a true warning sign that the company's growth story is beginning to crumble? IBM after the big drop IBM is a technology and consulting company with a market value of $205.9 billion, known for its work in hybrid cloud, enterprise software, and IT infrastructure. The stock has fallen by 28.2% so far this year, and by 24.6% over the past 52 weeks. IBM pays an annual forward dividend of $6.76 per share, resulting in a dividend yield of 3.20%. Its valuation is currently significantly lower than the industry sector, with a trailing P/E ratio of 18.44 times (industry median is 25.91 times) and a P/CF ratio of 14.71 times (industry median is 18.79 times). However, the more direct focus is on the preliminary results for the second quarter of 2026 released on July 14 - earlier than the full report and conference call scheduled for July 22. Revenue for the period was $17.2 billion, only increasing by 1% year-on-year, far below the analysts' general expectation of close to $17.9 billion. Non-GAAP EPS is expected to be $2.93 (up 5%), lower than the general expectation of about $3.01. Business segment performance shows software revenue growth of 5%, consulting flat (up 1% at constant currency), and infrastructure down by 7%. CEO Arvind Krishna explained in a letter to investors the reasons for the underperformance: in the final weeks of June, customers significantly shifted their capital expenditure priorities towards servers, storage, and memory, locking in infrastructure constraints ahead of expected price increases driven by AI demand. IBM's balance sheet is still growing. As of March 2026, total assets were $156.229 billion, an increase of 2.86%, leaving the company room for investment. Total liabilities were $123.174 billion, an increase of 3.39%. The rise in liabilities indicates that debt and obligations are quietly increasing. IBM's new AI toolkit may still be crucial Just as IBM faced a ratings downgrade and stock price decline, the company was rolling out some of its largest product updates in years. In mid-July, IBM launched new Power Systems hardware and software designed to handle large enterprise workloads. Its Power Autonomous Operations software is designed to discover and address capacity issues, with speed up to 15 times faster than manual inspection. The product lineup also includes an entry-level Power S1112 server for compact, AI-supported edge computing, as well as a new Power Virtual Server option. Outside of hardware, IBM has been deepening its AI tools through its software development AI platform Bob. Its advanced Bob suite adds targeted modernization features for Java, IBM i, and IBM Z environments. Trust and security have been recent news focuses. In late May and early July, IBM and Red Hat expanded Project Lightwell, a $5 billion project supported by over 20,000 engineers designed to make open-source software more secure for large organizations. The new Lightwell products aim to protect the software supply chain and build a stronger "trust infrastructure" as enterprises rely more on open source in AI-intensive systems. Overall, these product initiatives suggest that IBM is trying to transition into the fields of artificial intelligence, modernization, and security, rather than relying solely on old infrastructure. Wall Street's divergence on IBM Ovumheimer's trajectory on IBM largely reflects how its growth story has changed. The institution previously rated the stock as "outperforming the market," but that view has now reversed. Ovumheimer's analysts have downgraded the rating to "market perform," and completely canceled the $350 price target. The analyst behind this move, Param Singh, emphasizes that IBM's latest performance was below expectations in every segment of Ovumheimer and the broader market. This rating downgrade comes at another critical moment for IBM. The main financial report will be released after the US market closes on July 22, and Wall Street is looking for signs of earnings per share of $3.02 for the second quarter of 2026. This is compared to $2.80 for the same period last year, indicating an expected growth of 7.86%. It's not just Ovumheimer advising caution. Well-known analyst Jim Cramer has explicitly stated that he does not recommend retail investors trying to "buy on dips" in IBM just because the charts look cheaper. In his view, IBM is on the unfavorable side of a major shift in corporate technology budgets, as more spending now goes towards AI-centric projects. Nevertheless, the broader analyst community has not given up on the company. Of the 22 analysts currently rating IBM's stock, there is a consensus of "moderate buy" for IBM. The average target price is around $293.95, which means there is a 38.2% upside potential.