Why Are IBM Shares Falling?

You’ve almost certainly heard of IBM. For decades, the company felt as stable as a landmark, a true titan of technology. So when you see headlines about the IBM stock falling, it can be confusing. The story here isn’t one single disaster, but more like a slow-motion tug-of-war between the company’s past and its future.

What many don’t realize is that a stock’s price isn’t a report card on a company’s history. It’s a collective bet on what millions of investors believe will happen next. A falling price simply means that, right now, more people are worried about a company’s future profits than are excited about them.

So, why are investors concerned about IBM? The answer lies in three main areas: a struggle between its old and new businesses, fierce competition from modern rivals, and shifts in the wider economy.

The Tale of Two IBMs: Why The Company Is In a Tug-of-War With Itself

To understand IBM’s struggles, it helps to stop thinking of it as one company. Instead, picture a massive tug-of-war. On one side of the rope is IBM’s historic, legacy business; on the other, its modern business focused on growth. The company’s total sales number is just the flag in the middle—it doesn’t reveal how hard each team is actually pulling.

The “legacy” side includes selling and servicing huge mainframe computers and related software. Think of a company that mastered building DVD players. The “new” side is focused on high-growth areas like hybrid cloud computing and artificial intelligence (AI)—the modern-day equivalent of a streaming service. Both are part of the same company, but they are moving in opposite directions.

Here’s the core problem: the legacy business is so enormous that even a small percentage dip means losing a massive amount of sales. The new business, while growing, started from a much smaller base. It has to grow incredibly fast just to make up for the ground being lost, and for many investors, it simply isn’t winning the tug-of-war fast enough.

This internal conflict creates uncertainty. Investors watch this struggle and worry that the “new” IBM can’t pull the entire company forward quickly enough to deliver strong growth. One of the biggest anchors creating that drag is one of its most famous—and profitable—creations: the mainframe.

What Is a “Mainframe” and Why Is It IBM’s Billion-Dollar Problem?

For decades, IBM’s crown jewel was the mainframe computer. Forget your laptop; a mainframe is more like the powerful, centralized brain for an entire global bank or airline. It’s a refrigerator-sized box of unmatched reliability designed to process millions of transactions, like credit card swipes or flight bookings, without ever breaking a sweat. IBM didn’t just sell these machines; it built a fortress of services and software around them, making them incredibly profitable.

This profitability, however, is now part of the problem. Think of the mainframe business as a vast, rich oil field that is slowly but surely running dry. It still generates huge amounts of cash for IBM, but the world is moving toward newer energy sources. Companies today often prefer the flexibility of “renting” computing power from cloud providers instead of buying and maintaining their own massive machines. This trend is a key factor in the overall IBM revenue decline.

As a result, what was once IBM’s greatest strength has become a golden anchor. It’s valuable, but its weight slows the company’s ability to pivot toward the future. Investors see a core part of the business, responsible for reliable profits, shrinking year after year. They worry that even growth in newer areas like artificial intelligence can’t offset this decline, especially when facing off against the modern giants of tech.

The Cloud Wars: Why IBM Is an Underdog in a Fight Against Giants

While IBM was the master of selling its own powerful computers, a completely new business model took over the tech world: cloud computing. Instead of buying a massive mainframe “oven” for your own company, you could now simply “rent” space and power from a giant, shared “cloud kitchen.” This approach, offered by companies like Amazon and Microsoft, is often cheaper, more flexible, and lets businesses grow without buying expensive hardware.

Unfortunately for IBM, it was late to this party. The cloud market today is a battlefield dominated by two titans: Amazon Web Services (AWS) and Microsoft Azure. Together, they control a massive slice of the market, leaving IBM and a few others to fight for the scraps. This creates a difficult situation for investors comparing IBM and Microsoft stock; one is a clear leader in the growth market, and the other is playing catch-up.

For investors, this underdog status is a major concern. Even though IBM is working hard to grow its cloud business and advance its role in the artificial intelligence market, its growth looks small next to the giants. When people look for high-growth tech stock alternatives to IBM, they often turn to the very companies that are dominating the cloud.

Knowing it couldn’t win by playing the same game, IBM made a massive, risky bet to try and change its fate in the cloud wars. This decision would become one of the most-watched moves in the company’s recent history.

What Was the $34 Billion Red Hat Bet and Has It Paid Off?

Knowing it couldn’t win a direct fight with the cloud giants, IBM made a colossal move in 2019: it bought a software company called Red Hat for an eye-watering $34 billion. This strategy, a core part of CEO Arvind Krishna’s plan for IBM’s growth, was simple: if you can’t be the biggest cloud provider, become the essential partner for everyone. Red Hat’s software acts like a universal adapter, allowing a company’s different cloud systems and its own private computers to work together seamlessly.

This approach is what the industry calls “hybrid cloud.” The impact of the Red Hat acquisition was providing the software “glue” that connects a company’s old technology (running in their own building) with the new rental model of the public cloud. It allows businesses to manage everything from one place, regardless of whether the technology is theirs, Amazon’s, or Microsoft’s. This made IBM a neutral and necessary player rather than just another competitor.

So, has the bet paid off? In many ways, yes. Red Hat remains a consistent source of growth and is one of the brightest spots in the company. However, it hasn’t been a miracle cure. The growth from Red Hat simply hasn’t been explosive enough to make up for sluggishness in other parts of the business. For anyone asking if IBM is a good long-term investment, this shows the company found a winning product but still had an anchor weighing it down. To fix that, IBM decided it needed to make another drastic change.

How a Spinoff Changed IBM’s Shape: The Kyndryl Story

With Red Hat showing promise but not solving everything, IBM decided to remove the anchor weighing it down. It did this through a ‘spinoff’—a move like a band letting its bassist go solo to form a new group. The original band can now focus on a new sound, and both operate independently, free to pursue their own futures.

In late 2021, IBM did exactly that. It spun off its IT infrastructure services division—the business of managing day-to-day computer systems for other companies—into a new entity called Kyndryl. This legacy segment was a primary reason for IBM’s stock underperformance, as it was massive but offered very little growth, acting as a drag on the company’s overall results.

The goal was to create a leaner IBM focused solely on its high-growth areas like AI and hybrid cloud. This strategic divorce was meant to make the remaining company more attractive to investors. But such a dramatic change also raised new questions, especially about its famous dividend payment.

What a Dividend Tells You About a Company’s Health

When a company makes a profit, it can share a piece of that cash directly with its owners (the shareholders). This payment is called a dividend. For investors, it’s like receiving a small, regular thank you gift from the company just for owning its stock. It’s a direct return on their investment, separate from the stock price itself.

For decades, IBM has been famous for its reliable dividend, which is why some still see it as a good long-term investment for steady income. This consistent payout is often interpreted as a sign of financial strength—proof that the company is profitable enough to reward its shareholders. It signals stability in a way that fast-growing but unprofitable tech startups cannot.

But here’s the catch: every dollar paid as a dividend is a dollar not used to hire new talent or build better technology. This creates a major debate over IBM’s dividend safety and outlook. Critics worry that this large payment drains cash that’s desperately needed to fuel growth and catch up to competitors, putting the company’s future at risk for the sake of its present.

So, Is IBM a Good Investment? What to Watch For Next

The question of why IBM’s shares are falling reveals a bigger picture. The answer isn’t a single event, but a powerful tug-of-war between the weight of its past and the pull of its future. Understanding this core challenge—a giant company trying to pivot in a fast-changing world—allows you to look past the headlines.

With this context, you can ask more informed, forward-looking questions like, “Will IBM stock ever recover?” or “Is IBM a good long-term investment?” Instead of guessing, you can watch for specific signals. As you follow the story, here’s a simple checklist to track IBM’s progress:

• New Business Growth: Is the “new” IBM—its software and consulting—growing faster than its older divisions are shrinking?
• Major Partnerships: Are they winning significant deals with other major companies, proving their strategy is gaining trust?
• Overall Profitability: After all these changes, is the company actually making more money?

This framework helps you interpret the news, spot the real signs of progress, and decide for yourself whether the tech giant is successfully finding its footing.