ServiceNow falls 7.96% tracking IBM's disappointing Q2 results
ServiceNow Inc. shares dropped 7.96% to $102.40 on Tuesday, reacting to preliminary Q2 results from IBM that missed revenue and earnings estimates. IBM reported revenue of $17.2 billion, below the consensus of $17.86 billion, citing delays in closing large deals due to client shifts in capital expenditure. The decline affects ServiceNow despite a recent partnership expansion, as the stock remains sensitive to its partner's performance.
*this image is generated using AI for illustrative purposes only.
ServiceNow Inc. shares fell 7.96% to $102.40 on Tuesday, trading lower in sympathy with International Business Machines Corporation (IBM) after the latter reported preliminary second-quarter results that missed analyst expectations. The decline reverses recent gains for ServiceNow, which had been outperforming the broader market, and highlights the sensitivity of ServiceNow's stock to sentiment surrounding its close partner. The drop comes despite the companies announcing an expanded partnership last week aimed at modernizing enterprise systems and unlocking data for AI at scale.
IBM reported preliminary Q2 revenue of $17.2 billion, up 1% year-over-year but falling short of the $17.86 billion consensus estimate. Chief Executive Officer Arvind Krishna described the results as "disappointing" in a letter to investors. Adjusted earnings per share (EPS) came in at $2.93, below the $3.022 estimate, while GAAP diluted EPS was $2.27, down 2% year-over-year. The shortfall was driven primarily by weaker-than-expected performance in IBM's Z mainframe business and its associated software stack.
According to Krishna's letter, clients shifted capital expenditure toward servers, storage, and memory purchases in late June to secure supply-constrained infrastructure ahead of expected price increases. This shift caused numerous large deals to fail to close on IBM's expected timelines, impacting the quarterly figures. The technical picture for ServiceNow had previously improved, with the stock trading above its 20-day and 50-day simple moving averages, but the latest pullback has brought the price closer to the $98 support level identified by traders.
| Metric | Value |
|---|---|
| Current Price | $102.40 |
| Daily Change | -7.96% |
| Key Support | $98.00 |
| 50-day SMA | $102.30 |
| 200-day SMA | $130.45 |
Analysts remain broadly bullish on ServiceNow ahead of its own earnings report, with a consensus Buy rating and an average price target of $137.07. However, the immediate market reaction to IBM's performance suggests investors are cautious about the broader enterprise software and infrastructure spending environment. ServiceNow had been recovering from its April low, but the correlation with IBM's results underscores the interconnected risks within the sector.
Will the delay in large IBM deal closings due to infrastructure spending shifts similarly impact ServiceNow's upcoming quarterly results?
How effectively will the expanded AI-focused partnership mitigate the negative sentiment stemming from IBM's earnings miss?
Is the current pullback to the $98 support level a buying opportunity or a signal of further downside for ServiceNow?
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