IBM shares have experienced a devastating collapse of 35% over just 42 days, wiping out more than $100 billion in market value after a sharp shift in corporate technology spending exposed pressure from artificial intelligence on traditional software businesses. The stock crashed 25% on Tuesday alone, marking the company's biggest single-day decline since 1968 and taking the stock below levels seen during the 1987 Black Monday crash. The massive sell-off erased approximately $69 billion from IBM's market value in a single session, sending shockwaves across the software sector. As reported by The Kobeissi Letter, IBM was up 13% for the year and trading at record highs on June 2, but just 42 days later, the stock had fallen 25% in a single session and was down 35% over the period. The collapse reverses the recent IBM stock rally that pushed shares above $300 in early June, bringing the stock closer to its 52-week low of $212.34 than its high of $332.46. IBM stock was previously off just 4.8% since the start of the year heading into Tuesday, but it is now off 26% year to date.
The technology giant reported preliminary second-quarter results that missed both profit and revenue estimates. As reported in IBM's Form 8-K filing with the US SEC, the company anticipates a quarterly adjusted profit of $2.93 per share on revenue of $17.2 billion. This compares unfavorably to analyst predictions of $3.02 per share on revenue of $17.86 billion according to LSEG data. Preliminary second-quarter revenue stood at $17.2 billion, below analysts' estimates of $17.9 billion. The company forecast second-quarter revenue of $17.2 billion, representing a 1% year-on-year increase, while adjusted earnings per share were projected at $2.93. Infrastructure revenue fell 7%, software grew 5%, and consulting remained flat during the quarter. In a letter to investors, CEO Arvind Krishna stated that "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 preliminary results also showed GAAP earnings per share of roughly $2.27, representing a 2% year-over-year decline, while the pretax income margin came in at a projected 14.4%, shrinking by 90 basis points. The company said it is still finalising its financial statements, with official quarterly results due on July 22 and subject to minor revisions.
CEO Arvind Krishna has taken full responsibility for IBM's disappointing quarterly performance in a letter to investors, acknowledging the company's slow adaptation to changing client spending patterns. In the letter, Krishna stated that "What played out was worse than our expectations. We did not adapt and move quickly enough," explaining that IBM failed to react fast enough as customers changed the way they were spending money. He admitted that the company had expected some supply chain problems, but it did not expect customers to move such a large share of their budgets away from software. Krishna also acknowledged that customers were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter, stating "These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall." The CEO's admission represents a significant shift from his previous statements, where he had attributed the shortfall to specific operational challenges rather than acknowledging the company's failure to adapt to market conditions. According to reports, IBM had anticipated some disruption to customer spending patterns because of supply-chain factors, but the shift proved far greater than the company had expected. Krishna also said that IBM's Z mainframes and related software accounted for much of the revenue shortfall, as the global race to build AI data centres has created severe shortages of semiconductors, especially memory chips, prompting customers to prioritise spending on servers, chips and storage over other technology investments.
The precipitous drop in IBM's stock came after the company warned of a second-quarter "shortfall" in the performance of its software and infrastructure division, linked to the rollout of its new z17 mainframes, which are designed to process AI workloads. The memory crisis has created a fundamental shift in enterprise technology spending, with memory giants like Samsung, SK Hynix, and Micron shifting production toward specialized AI chips, leaving everyday memory for servers, PCs, and phones in short supply. As Micron's CEO noted, "tight conditions are expected to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints." The softer outlook comes as businesses increasingly direct their technology spending towards artificial intelligence infrastructure, including servers, storage and memory, resulting in lower expenditure on conventional software offerings. The prospect of further price rises appears to have prompted IBM's clients to prioritize hardware procurement over the software and mainframe purchases the company had anticipated. The results have raised concerns over enterprise technology spending, with the warning quickly spreading across the sector, as evidenced by Workday dropping 6.3% and Salesforce shedding 3.2% as traders priced in the same budget shift. Krishna told CNBC's Sara Eisen that "Mythos is making people pause to say, wait, how much do I need to spend on cyber? They're pausing on new deals until they know," referring to Anthropic's AI cybersecurity model.
IBM's warning has intensified concerns across the software industry, with the weakness spreading across the broader technology sector. Following the announcement, the stock plunged by as much as 26% in premarket trading, with the weakness spreading across the broader software sector. Shares of Microsoft, ServiceNow, Salesforce and Intuit declined between 2% and 5%, while the iShares Expanded Tech-Software Sector ETF fell more than 4%. The immediate trigger for the sell-off was IBM's warning that it had "faltered" in responding to a sharp change in corporate technology spending, as companies increasingly redirect budgets away from software and towards data-centre infrastructure, including servers, chips, storage and networking equipment. According to The Kobeissi Letter, "The biggest lesson of the AI era: never get comfortable." The softer outlook indicates that many customers are giving priority to investments in hardware and data-centre infrastructure, while postponing or scaling back software purchases. According to Vital Knowledge founder Adam Crisafulli, "IBM's results will deliver a devastating blow to software/services stocks as investors will worry about the capex pivot negatively impacting the whole industry." While manufacturers of chips, servers and memory products have gained from increased investment in AI infrastructure, software companies are encountering tighter spending decisions from enterprise customers. IBM's outlook has highlighted an additional challenge, indicating that the surge in AI-related spending is not benefiting every segment of the technology industry equally. The results have significantly impacted IBM's competitors, with shares of Oracle (ORCL) off 33% year to date, while Microsoft (MSFT) has declined 20%. Accenture (ACN) is down 50%. The collapse reflects broader AI capital expenditure trends, with hardware winning budget battles as semiconductors beat Big Tech in the first half and TSMC posted record AI chip revenue in June.
