Jim Cramer states that IBM's 25% drop doesn't make the stock worth buying.

Concerns Surround IBM’s Future as Spending Shifts

Jim Cramer from CNBC expressed serious concerns about IBM’s prospects during a recent appearance. He noted that the company has found itself on the wrong side of significant changes in corporate technology spending.

“This is the new reality,” Cramer remarked, emphasizing his uncertainty about when this trend might change. Consequently, he cannot recommend buying IBM stock, especially after the notable drop it experienced yesterday.

IBM’s stock plummeted approximately 25% following a pre-announcement revealing disappointing second-quarter results, just days before its scheduled earnings report. Key metrics such as sales, profits, and software revenue growth fell short of Wall Street’s projections, with CEO Arvind Krishna admitting the company was “sluggish” due to several large deals failing to finalize.

Cramer highlighted this shortfall as a clear indication that businesses are adjusting their IT budgets as investments in artificial intelligence ramp up. He noted that organizations are increasingly focusing their spending on three primary areas: cybersecurity, hardware, and AI “tokens,” which relate to the costs of using AI models. Other tech initiatives seem to be getting pushed aside.

“Unfortunately for IBM,” he said, “too many of their offerings are categorized as ‘other spend,’ despite having a compelling overall AI narrative.”

Despite the downturn, Cramer acknowledged Krishna’s accountability for the disappointing results and mentioned that IBM still maintains an appealing long-term outlook, with the stock currently providing a yield over 3%.

However, he cautioned that this positive angle does not outweigh existing worries regarding how changes in corporate IT budgets could keep impacting IBM. “I’m just too troubled by these trends to suggest it’s safe to invest in IBM at the moment,” Cramer stated. He noted that as IT managers prepare their budgets for 2027, they will likely continue prioritizing these three key areas, indicating potential difficulties for other technologies.

“I really hope the contracts are just postponed and not completely off the table,” he added. “But you can’t advocate for a stock based on hope alone.”