ServiceNow stock dropped 6.4% in early trading after IBM released preliminary second-quarter results that disappointed investors and missed consensus estimates. IBM reported preliminary Q2 revenue of $17.2 billion, a 1% increase versus the same period a year earlier, but below the $17.86 billion analysts had expected. In a letter to investors, CEO Arvind Krishna described the results as "disappointing." According to the company, the revenue shortfall was driven primarily by weaker-than-expected performance in IBM's Z mainframe business and its associated software stack.
The market reaction extended beyond IBM, reaching enterprise software peers with close operational ties to the tech giant. ServiceNow and IBM have a longstanding collaborative relationship, and the two firms announced an expanded partnership just last week intended to modernize enterprise systems and unlock data for AI at scale. That recently deepened connection heightened sensitivity in ServiceNow’s stock to negative developments at IBM.
Analysts reacted cautiously. UBS kept its Neutral rating on ServiceNow while increasing its price target to $115 from $100. The rating action provided limited reassurance amid the broader selloff triggered by IBM’s results. Compounding investor caution is ServiceNow’s own Q2 2026 earnings report, which is scheduled for July 22, adding a near-term earnings catalyst that investors must weigh.
The wider market backdrop featured mixed signals. June 2026 consumer price index data showed a 3.5% year-over-year increase, below the 3.8% that had been expected, helped in part by lower energy prices. That softer CPI print offered some support to major indices, with modest gains for the S&P 500 and the Nasdaq. However, hawkish remarks from FOMC Governor Waller, who warned that higher interest rates may be necessary to rein in elevated core inflation readings, limited upside momentum.
Sector-specific pressure also emerged in early trading among large AI-focused cloud and software providers. AI hyperscalers were sharply lower, with Microsoft and Oracle each falling about 3% in early trading, creating additional headwinds within the enterprise software segment where ServiceNow operates.
Investors reacted to the intersection of IBM’s revenue miss, the refreshed IBM-ServiceNow partnership that raises correlation risk, and an uncertain macro environment shaped by oil-price dynamics and rate concerns. ServiceNow shares, which had already been trading well below their 52-week high of $210.20, reached an intraday low of $102.61 before recovering partially to $104.18.
Key points
- ServiceNow fell 6.4% in morning trading after IBM reported preliminary Q2 revenue of $17.2 billion, below the $17.86 billion consensus.
- The revenue shortfall at IBM was attributed mainly to weaker performance in its Z mainframe business and related software; the two companies announced an expanded partnership last week.
- Market factors including a softer-than-expected June CPI print and hawkish Fed commentary, along with declines in major AI cloud providers, weighed on enterprise software stocks.
Risks and uncertainties
- Company-specific risk: Continued softness in IBM’s Z mainframe business could sustain negative sentiment for closely partnered enterprise software firms.
- Earnings risk: ServiceNow faces near-term uncertainty ahead of its Q2 2026 earnings report on July 22, which may prompt investors to reduce exposure.
- Macro and market risk: Shifts in inflation readings, energy prices, and Fed policy commentary could influence broader market appetite for enterprise software shares.
Investors assessing ServiceNow must weigh the direct implications of IBM’s preliminary results against the timing of ServiceNow’s own earnings release and a market environment influenced by inflation data and central bank messaging. The recent expansion of the IBM-ServiceNow partnership intensifies the link between the two companies’ near-term narratives, amplifying how weakness at one can affect sentiment toward the other.