Steepest drop since 1987. Signal or just a stumble?
In a single day, shares of a company over a hundred years old lost about a fifth of their value, the steepest drop since 1987. It wasn’t caused by an accounting scandal or the collapse of a key division, but by a warning that results for the just-ending quarter would fall short of the company's own estimates. According to preliminary numbers, revenue reached $17.2 billion instead of the expected $17.86 billion, and earnings per share came to $2.93 instead of $3.01. Thus, roughly $55 billion to $65 billion vanished from the company's market value within a few hours.
Key points
One bad quarter, not necessarily a turn for the worse. The drop of more than twenty percent came after a warning for the second quarter, which in itself doesn’t mean a decline in revenue, only a miss relative to expectations. The real test will come with the full results on July 22.
Software is pulling, consulting is stalling. The software segment continues to grow at a double-digit pace and maintains the highest margins, but the consulting business is noticeably slowing and facing pressure from AI automation.
Debt rises with every acquisition. After the purchases of HashiCorp and Confluent, debt climbed to $66.4 billion, the highest since the Red Hat acquisition, narrowing the room for further purchases and for servicing the dividend.
The valuation after the drop is more sober, though not necessarily cheap. Even after a twenty-percent decline, the stock trades at a premium to the sector according to some analysts, while others (Bank of America, Evercore) see an opportunity after the fall.
The dividend holds. The payout that has grown for 31 consecutive years and a yield above three percent after the price drop remain one of the few stable arguments for more conservative investors – provided, of course, that the growth slowdown doesn’t also affect future increases.
Just a week earlier, things looked completely different. The stock was heading toward all-time highs, analysts were raising target prices one after another, and the company reported record profit of over $10 billion for fiscal 2025. The company, which started out as a maker of scales, time clocks, and punched-card tabulators and today says it plans to build a practically useful quantum computer by the end of the decade, has long held a reputation as a boring, conservative dividend play, not a stock that wipes out a fifth of its value in a single day.
Moreover, such a swing isn’t just a question of one bad quarter. In recent years the company has undergone a costly transformation of its business, a series of acquisitions worth tens of billions of dollars, and the spin-off of an entire division into a separately traded company, all with the aim of convincing the market that a slow-growing industrial colossus has become a modern software and AI company. Today’s drop doesn’t repudiate that turnaround but opens a question that both company management and investors will have to answer: was this a one-off stumble on an otherwise functional path, or the first sign that the pace the market had built into the stock price was too optimistic?
Finish the whole article on ACN
And you also unlock fair value and more tools
Black membership: analyses, screener, newsletters and unlimited StockBot.