IBM shares plunged 26% on Tuesday, marking the worst single-day fall since at least 1987 and representing a $69 billion wipeout from its market capitalisation of $272.78 billion. According to The Times of India, this historic decline surpassed even the devastating 1987 Black Monday crash, highlighting the severity of the technology sector's rebalancing toward artificial intelligence. IBM posted preliminary revenue of $17.2 billion for the quarter, representing a 1% year-on-year increase, below analysts' estimate of $17.86 billion. IBM also expects adjusted earnings per share of $2.93, lower than the Street estimate of $3.01. CEO Arvind Krishna attributed the shortfall to customers shifting technology budgets away from software and consulting projects towards AI infrastructure investments. As Krishna explained in a letter to investors, "In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases." The warning triggered a broader selloff, with Dow futures falling and the iShares Expanded Tech-Software Sector ETF declining more than 4%. According to The Times of India, the weakness also spread to other software stocks, with Microsoft, ServiceNow, Salesforce, and Intuit declining between 2% and 5%.
While IBM dominated headlines with its historic crash, the broader market showed resilience led by strong banking performance. Goldman Sachs surged 9% on Tuesday to end at a record high after reporting trading revenue of $7.42 billion during the quarter, surpassing even the highest estimate on the street. JPMorgan and Bank of America also ended at their respective record high levels after their trading revenue and quarterly results surpassed expectations. However, Citigroup's shares fell over 5% even as its trading revenue grew by 45% during the quarter but was lower than its peers, while Wells Fargo shares dropped over 2% after its results. The banking sector's strong performance helped offset IBM's massive decline, with the Dow Jones ending just above the flat line while the S&P 500 gained 0.4% and the Nasdaq Composite was up 0.9%. As per Upstox, the US stock market posted a divergent trade on Tuesday amid multiple positive and negative factors, with the tech-heavy NASDAQ 100 index soaring 300 points while the S&P 500 jumped 0.3%.
The weak IBM results triggered a devastating selloff across the entire technology sector, with IT services and software stocks tumbling significantly. According to Business Standard, Microsoft, ServiceNow, Salesforce and Intuit fell between 3% and 5%. Among software companies, Microsoft fell around 3%, Workday dropped 10%, Oracle slipped 2.1%, Salesforce declined 6.2% and Autodesk lost 5%. The iShares Expanded Tech-Software Sector ETF, a key benchmark for software stocks dropped 4.5%, while the broader iShares Expanded Tech-Software Sector ETF has declined more than 12% so far this year. The Philadelphia Semiconductor Index, benefiting from AI infrastructure spending, has gained over 74% in contrast. As IG Group's Chris Beauchamp noted, "This is an ugly moment for IBM and software stocks... the big question will be how long the shift to infrastructure and cybersecurity lasts." Cognizant shares fell as much as 4.3% earlier in the session, recovering to trade 2.45% lower at $43.08, Salesforce pared part of its decline, trading 2.92% lower at $166.12 after opening down 4.8%, and Accenture slipped 2.98% to $134.42. According to Upstox, following the weak outlook on software services division, the shares of peer software group companies like Salesforce, Microsoft, ServiceNow fell up to 4% amid bleak outlook for software firms. The ADR of Indian software companies like Infosys and Wipro also fell over 5% on Tuesday as investors again turn cautious on the software firms.
While software stocks faced significant pressure, chip stocks resumed their momentum following positive developments from NVIDIA. According to Upstox, chip stocks soared as media reports claimed that NVIDIA has resumed back its sales of H200 chips to China, boosting the overall sentiment for chip stocks. Shares of NVIDIA jumped over 3%, Micron Technology shares rallied 5%, and AMD shares rose 3.8%. This rally in chip stocks helped offset the broader technology sector decline and contributed to the NASDAQ 100 index jumping nearly 300 points on Tuesday. The strong performance of chip stocks contrasted sharply with the weakness in software companies, highlighting the market's selective approach to technology investments amid the AI infrastructure shift.
The IBM warning represents the clearest indication so far of the growing impact artificial intelligence is having on the software sector, as companies redirect technology budgets toward supply-constrained infrastructure. According to The Times of India, IBM said the weakness was concentrated in its mainframe business, which provides high-performance computers and software used to process millions of transactions each day across industries including banking and aviation. The company also noted that businesses are increasingly prioritising spending on cybersecurity following recent advances in AI-powered hacking capabilities, with Anthropic's advanced Mythos model unsettling businesses this year because of its ability to identify vulnerabilities in existing software and encryption systems. IBM said it expects second-quarter revenue to increase by only 1% to $17.2 billion, falling short of analysts' forecast of $17.86 billion, which would represent the company's slowest revenue growth in more than a year. IBM also projected adjusted earnings per share of $2.93, below the analysts' estimate of $3.02. Seeking to reassure investors, IBM highlighted its substantial commitment to quantum computing, including plans to invest more than $10 billion to develop the first large-scale quantum computer by 2029. However, as IG Group's Chris Beauchamp noted, "A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks." IBM is scheduled to announce its second-quarter financial results on July 22.
LTM posted stable earnings growth at 0.3% sequential growth in revenue during Q1FY27, with order inflow remaining muted at -0.3% QoQ at $1.68 billion. As reported by Upstox, the company achieved topline growth of 6.4% on a constant currency basis and 6.1% on a USD basis. CEO and MD Venu Lambu expressed confidence that growth momentum will continue building through the year, with management indicating that momentum to visibility would accelerate in Q2 and move strongly in H2FY27. The company expects to surpass the 6% growth rate achieved in FY26.
