IBM Software Growth Slows Amid Infrastructure Spending Priorities

IBM's Software business experienced slower momentum in Q2 2026, with revenues growing only 5% year over year to $7.8 billion. However, organic revenue growth was flat due to a decline in Transaction Processing business, which dropped by 8%. The company attributed this slowdown primarily to customers allocating capital towards servers, storage, and memory to prepare for anticipated price increases.

The shift in spending priorities led to several large software deals not closing within the expected timeframe. Nevertheless, IBM's recurring revenue model is a key strength, with approximately 80% of annual Software revenues coming from this source. Red Hat remains a growth engine for IBM, with Hybrid Cloud revenues increasing by 11% and OpenShift ARR reaching $2.2 billion.

The company's Data business also saw significant growth, with revenues rising by 19%. The acquisitions of HashiCorp and Confluent have bolstered IBM's capabilities in automation, data, and hybrid-cloud environments. Despite the revenue shortfall, IBM managed to expand Software segment profit by 9% to $2.5 billion, while increasing the segment margin by 110 basis points to 32.2%.