IBM Shares Plunge As AI Infrastructure Spending Squeezes Enterprise Software Budgets

IBM shares fell approximately 25 percent Tuesday after the company unexpectedly released preliminary second-quarter results that missed Wall Street expectations, raising concerns about how rapidly rising artificial intelligence infrastructure costs are reshaping enterprise technology budgets.

The decline erased nearly $68 billion from IBM’s market capitalization and represented the company’s largest one-day loss in market value. The stock was also headed for its steepest percentage decline since 1987.

IBM expects to report second-quarter revenue of $17.2 billion, an increase of 1 percent from the previous year, and adjusted earnings of $2.93 per share. Analysts had expected approximately $17.86 billion in revenue and earnings of $3.01 per share.

The company emphasized that these figures are preliminary and could change slightly when IBM reports its complete second-quarter results on July 22.

Customers Redirect Spending Toward Scarce Infrastructure

IBM CEO Arvind Krishna attributed much of the shortfall to an abrupt shift in customer capital spending during the final weeks of June.

Enterprise customers moved spending toward servers, storage and memory to secure supply-constrained infrastructure before anticipated price increases. That reprioritization reduced spending on IBM’s Z mainframes and the associated transaction-processing software.

“While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization,” Krishna wrote in a letter to investors.

IBM’s infrastructure revenue declined 7 percent, driven partly by weaker-than-expected performance in its Z mainframe business and the related software stack. Software revenue increased 5 percent, while consulting revenue was essentially unchanged.

The company also acknowledged internal execution problems. Several large transactions did not close during the quarter, and Krishna said IBM did not adapt quickly enough as customer priorities changed.

AI Spending Is Moving Between Technology Layers

The results do not necessarily indicate that companies are reducing their overall commitment to artificial intelligence. Instead, they show how spending is moving between different layers of the technology stack.

Companies facing shortages and rising prices for memory, servers and storage may accelerate infrastructure purchases while delaying software, consulting and modernization projects.

That shift has implications throughout the enterprise technology supply chain. Hardware manufacturers may experience accelerated demand, while software and services providers encounter delayed purchasing decisions even when customers continue pursuing AI programs.

IBM’s warning also pressured other technology stocks Tuesday, including ServiceNow, Salesforce, Microsoft and Oracle, as investors considered whether the spending shift extends beyond IBM.

IBM will provide its complete financial results and updated outlook on July 22