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IBM shares plunged 25 per cent on Tuesday, their biggest one-day decline in nearly 60 years, wiping out around $70 billion in market value after the technology giant warned of weaker-than-expected second-quarter results. The sharp sell-off came after the company lowered its revenue outlook and admitted it had failed to keep pace with rapidly changing customer spending patterns in the AI era.
Here’s what triggered the historic decline:
Customers shifted spending to AI infrastructure
IBM said many clients diverted their technology budgets away from enterprise software and consulting towards AI infrastructure such as servers, storage and memory chips. Companies rushed to secure supply-constrained hardware, leaving less money for traditional software spending.
IBM admitted it failed to execute
Chief Executive Officer Arvind Krishna acknowledged the company was slow to respond to the changing market.
“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,” he said in a letter to investors.
The delayed closure of several large enterprise contracts became a major reason for the revenue shortfall.
Cybersecurity took priority over software
IBM also said customers delayed software purchases as businesses focused more on cybersecurity amid growing AI-powered cyber threats. Companies chose to strengthen security systems before investing in new software projects.
Mainframe business disappointed
Sales of IBM’s Z mainframe computers and related software came in weaker than expected, adding to the company’s troubles. The infrastructure division, which includes the mainframe business, reported a 7 per cent decline in sales.
Weak outlook rattled Wall Street
IBM now expects second-quarter revenue of about $17.2 billion, below analysts’ estimate of $17.86 billion, while adjusted earnings per share are projected at $2.93 versus expectations of $3.02, according to LSEG data cited by Reuters. The disappointing guidance sparked a broader sell-off in software stocks, with Microsoft, Salesforce, ServiceNow and Intuit also falling.
Despite the sharp market reaction, IBM said its long-term strategy remains unchanged, highlighting strong growth in Red Hat, continued AI investments and its plans to expand in quantum computing. Investors will look for more clarity when the company reports its full quarterly results on July 22.
With inputs from agencies.
