IBM Stock Plunges 25% as Customers Divert IT Spending to AI Infrastructure Ahead of Price Hikes
17 Sources
[1]
IBM's mainframe sales get mugged by AI hardware panic, stock loses more than a quarter of its value
CEO Krishna: Customers blew their Z budgets on servers and storage before prices spike, Q2 financials 'disappointing' IBM says customers spooked by soaring demand for AI infrastructure raided their mainframe budgets to stockpile servers, storage, and memory instead, knocking Big Blue's flagship Z
[2]
IBM share plunge is a warning to the IT sector
AI demand is starting to crowd out other forms of sector spending Spending on data centres has been one of the main things powering a historic boom in IT spending. Now, as the scramble for increasingly scarce resources gets intense, it is becoming the only thing. That is one reading of an
[3]
IBM shares plunge after preliminary Q2 revenue falls short of estimates despite surging AI bookings
IBM shares fell sharply after preliminary Q2 revenue came in below estimates despite AI bookings topping $12 billion cumulatively. IBM issued preliminary second-quarter results on Monday showing revenue of roughly $17 billion, up one percent year over year but well below the $18 billion that
[4]
Manic markets show no mercy to IBM
IBM issued a profit warning that sent its shares plunging more than 20 per cent, as customers raced to redirect spending to servers and storage ahead of price increases driven by the AI boom. The tech company had expected strong sales in mainframes and related software but instead corporate
[5]
This "will rattle many": IBM stock tanks as AI budgets shift
Why it matters: The software industry is suffering as companies shift their tech spending from conventional software to AI tokens and data centers. Driving the news: IBM CEO Arvind Krishna delivered a preliminary look at the company's second-quarter earnings, saying IBM had "faltered" in adapting
[6]
'Worse than our expectations': IBM's shares drop 25% after CEO says it hasn't adapted quickly enough to AI industry changes
IBM's share price just dropped by a whopping 25%. That's thanks to IBM's CEO, Arvind Krishna, saying the company didn't adapt quickly enough to the industry moving towards spending less on software and more on data centre infrastructure (via CNN). As noted by CNN, this puts the company in the
[7]
IBM shares plummet 25% on weak preliminary earnings
Shares of IBM Corp. dropped 25% today after it posted preliminary second quarter earnings that missed expectations. The company estimates that it generated $17.2 billion in revenue during the three quarters ended June 30. Analysts polled by FactSet expected $660 million more. IBM's adjusted
[8]
Why IBM shares crashed 26%: CEO Arvind Krishna highlights customer spending shifts towards AI
IBM's second-quarter results missed expectations, impacted by customer spending shifts, triggering one of the worst crashes in its stock. CEO Arvind Krishna said clients prioritized AI infrastructure, securing supply-constrained hardware in June. He also atrributed the shortfall to execution lapses
[9]
IBM warns AI boom is squeezing software budgets, triggers sector rout
Software investors have long been on edge over fears that AI tools capable of automating routine work could pose an existential threat to the industry. Tuesday's announcement showed that even the boom in spending on servers, chips and networking gear for AI was eating into software budgets. IBM
[10]
IBM's 25% crash reveals AI's hidden corporate casualty
IBM's board faced an uncomfortable decision after learning that the company's second quarter had fallen well short of expectations. Directors can now take a breather and wait until the scheduled earnings release and let executives explain the results in detail. Or they could warn investors
[11]
IBM forecasts preliminary Q2 revenue below estimates as spending shifts to AI
According to the preliminary results, the company expects revenue of $17.2 billion during the quarter, compared with analysts' estimate of $17.86 billion, according to data compiled by LSEG. IBM's preliminary second-quarter revenue forecast came below Wall Street estimate on Tuesday, as customers
[12]
IBM's historic crash exposes an AI spending trap for the company
IBM (IBM) shares lost roughly one-quarter of their value on July 14 after the tech giant dropped disappointing preliminary second-quarter results. The collapse was historic, but the severity of the earnings gap alone doesn't explain the market reaction. IBM could be in an artificial intelligence
[13]
IBM shares plunge 25% as AI spending boom hammers business: 'Ugly moment for software stocks'
IBM said it had "faltered" in keeping pace with a shift in corporate spending from software to data-center infrastructure and forecast second-quarter earnings below estimates, the clearest sign yet of AI's growing toll on the sector. The warning sent IBM's shares down 25% in trading on Tuesday,
[14]
Japan IT stocks slide after IBM warns AI spending crowds out software budgets By Investing.com
Investing.com-- Japan's information technology stocks fell on Wednesday after IBM's weak revenue outlook fueled concerns that surging spending on artificial intelligence infrastructure is crowding out enterprise software budgets. IBM shares tumbled 25% overnight after warning that customers had
[15]
IBM warns AI boom squeezing software budgets, shares sink
IBM shares plunged 25% on Tuesday after it signaled the AI infrastructure boom is drawing spending away from the software sector. Big Blue said it expected revenue to rise just 1% in the second quarter, falling short of Wall Street hopes. In a letter to investors, CEO Arvind Krishna said the firm
[16]
IBM warns AI boom is squeezing software budgets, triggers sector rout
July 14 (Reuters) - IBM sparked a market rout on Tuesday after forecasting second-quarter revenue below estimates and signaling that businesses were favoring spending on data-center infrastructure over software, the starkest sign yet of AI's growing toll on the sector. Shares of Big Blue slumped
[17]
IBM forecasts preliminary Q2 revenue below estimates as spending shifts to AI
July 14 (Reuters) - IBM's preliminary second-quarter revenue forecast came below Wall Street estimate on Tuesday, as customers prioritized spending on AI infrastructure, including servers, storage and memory purchases, sending its shares slumping 17% in premarket trading. The results reflect an
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IBM shares suffered their worst single-day drop since 1972, falling 25%, after the company revealed customers redirected budgets from mainframes to servers and storage amid AI hardware panic. CEO Arvind Krishna admitted the company failed to anticipate the magnitude of the spending shift as clients rushed to secure supply-constrained infrastructure before expected price increases.
IBM Share Plunge Marks Historic Market Reaction
IBM stock experienced a catastrophic 25% single-day decline, marking the biggest drop since at least 1972, after the company issued an earnings warning that revealed how dramatically AI infrastructure demand is reshaping corporate technology budgets
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. The company took the unusual step of releasing preliminary Q2 revenue results ahead of schedule, showing revenue of approximately $17 billion—up just 1% year-over-year but significantly below the $17.8 billion to $18 billion analyst expectations3
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. The market reaction was swift and severe, erasing weeks of gains that had propelled the stock up 30% in May alone.
Source: ET
CEO Arvind Krishna delivered a candid letter to shareholders acknowledging the company's failure to adapt quickly enough to rapidly changing market conditions. "These conditions require our teams to execute perfectly, and this quarter we faltered," Krishna wrote, admitting that "we did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected"
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. Baird managing director Ted Mortonson characterized the results bluntly: "This a major miss that will rattle many"5
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Source: Axios
AI Hardware Panic Drives IT Spending Shift
The core issue driving IBM's disappointing preliminary Q2 revenue falls short of expectations centers on customers diverting IT spending away from traditional enterprise infrastructure toward AI-driven demand for computing infrastructure. Krishna explained 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"
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. This shift in corporate spending toward servers and storage represents a fundamental change in how enterprises are allocating technology budgets.While IBM had anticipated some disruption from supply chain pressures, Krishna admitted the company "did not anticipate the magnitude of the capex reprioritization"
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. The AI budgets shift has created what some are calling AI hardware panic, with companies racing to stockpile critical components before tariff-related and demand-driven price increases take effect. This dynamic has particularly benefited memory chip manufacturers, with Micron reporting an 83% gross profit margin in its latest quarter—more than double the level from a year earlier—while Nvidia maintains a 75% margin2
.Mainframe Sales Decline Despite Strong Launch
The Infrastructure segment bore the brunt of the spending reallocation, with revenue falling 7% compared to analyst expectations of a low single-digit decline
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. This mainframe sales decline is particularly striking given that IBM had previously described the launch of its AI-focused z17 mainframe platform in 2025 as "the strongest launch of a mainframe generation in its history"1
. The Z platform, which processes many of the world's financial transactions and airline reservations, represents one of IBM's highest-margin businesses, making the shortfall particularly painful.
Source: SiliconANGLE
The spending shift also created a ripple effect through software revenue, which rose just 5% compared to Wall Street's expectation of 10% growth
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. Fewer mainframe deals meant weaker sales of the transaction-processing software that typically accompanies them. Red Hat, IBM's 2019 cloud acquisition and notable growth engine, managed 11% revenue growth, though this still fell short of forecasts3
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.Execution Issues Compound External Pressures
Beyond market dynamics, Krishna acknowledged significant execution issues within IBM's own operations. Goldman Sachs analysts flagged what they termed "company-specific execution issues," noting that numerous large deals failed to close on expected timelines
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. Krishna also pointed to clients being "distracted by rapidly evolving, industry-wide cybersecurity concerns" during the quarter, though he offered no further details on what those specific concerns entailed1
.Adjusted earnings per share came in at nearly $3, below the roughly $3 consensus, while gross profit margin fell to just under 58%, down about one percentage point from a year earlier
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. The combination of weaker revenue and narrower margins drove the sharp sell-off, with HSBC downgrading IBM from hold to reduce, though Goldman maintained its 2026-2028 EPS estimates despite expecting the stock to "trade meaningfully lower"4
.Related Stories
AI Bookings Provide Silver Lining Amid Broader Weakness
Despite the disappointing overall results, IBM reported that cumulative AI bookings have now surpassed $12 billion, suggesting sustained enterprise demand for AI consulting and infrastructure
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. The company has been investing heavily in its hybrid cloud and AI positioning, including recent partnerships with OpenAI on enterprise cybersecurity. IBM's Distributed Infrastructure business posted record reported growth of 37%, driven by Power servers and storage systems, while recent acquisitions including HashiCorp and Confluent performed strongly1
.However, the preliminary results raise questions about whether AI momentum through watsonx and other initiatives can offset weakness in IBM's legacy businesses quickly enough. For investors who had bought into the thesis that IBM was finally turning a corner—with Barclays setting a $350 price target last month comparing IBM's quantum computing trajectory to Nvidia's—the earnings warning serves as a stark reminder that the transition remains uneven
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. Shares ended the day at $217, far below analyst expectations that had fueled the earlier rally.Broader Implications for IT Sector Spending Patterns
IBM's struggles offer a warning signal for the broader IT sector about how AI infrastructure spending is beginning to crowd out other forms of technology investment. Until now, IT research firm Gartner had responded to soaring data center spending by simply raising overall IT spending forecasts, operating under the assumption that AI would add to total tech demand rather than cannibalizing existing budgets
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. IBM's experience suggests that dynamic may be changing, with finite corporate budgets forcing difficult trade-offs.Investors reacted to the news by selling shares of other software companies including ServiceNow and Adobe, while makers of electronic devices may also face pressure as higher component prices for PCs, gaming consoles, and smartphones reduce demand
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. The situation highlights two emerging risks: timing issues could introduce unpredictability into AI infrastructure spending as companies rush purchases ahead of price increases, potentially slowing future spending as they digest what they've already bought. Additionally, rising prices mean more capital budgets flow to memory chip makers rather than translating into additional computing capacity, which could limit AI supply just as demand accelerates.Looking ahead, IBM is banking on quantum computing to fill revenue gaps, recently announcing plans to partner with the U.S. Department of Commerce to build Anderon, matching $1 billion in federal funding to construct a quantum wafer foundry. Krishna stated IBM is "on track to deliver the first large-scale fault-tolerant quantum computer by 2029"
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. Whether these emerging technologies can offset the fundamental shift in how enterprises allocate their technology budgets remains the critical question for IBM and the broader enterprise IT sector.References
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