IBM’s stock suffered its steepest single-day decline in decades on Tuesday, plunging more than 25% and wiping more than $50bn (£37bn) from its market value after the US tech giant issued a profit warning that sent shockwaves through the software sector.
The selloff, which exceeded the scale of the 1987 “Black Monday” crash for IBM, came after the company released disappointing preliminary second-quarter results. Revenue for the three months ending in June was $17.2bn, up just 1% year-over-year – well below analysts’ forecast of $17.86bn. Adjusted earnings per share came in at $2.93, missing estimates of $3.02.
“IBM shares crashed more than 25%, wiping over $50bn in value, after a profit warning blamed shifting corporate spending to AI infrastructure.”
IBM blamed the shortfall on a sudden shift in corporate customers’ spending. In a letter to investors, chief executive Arvind Krishna explained that in the last few weeks of June, clients rushed to buy servers, storage and memory to secure supply-constrained infrastructure ahead of expected price increases. That pull-forward diverted capital away from IBM’s higher-margin mainframe computers and related software, the products the company had been counting on. Krishna added that “numerous large deals” had failed to close as expected.
The warning triggered a slump that rippled across the software industry. Microsoft, ServiceNow, Salesforce and Intuit all fell between 3% and 5%. Chris Beauchamp, chief market analyst at IG Group, called it “an ugly moment for IBM and software stocks.” He added that the big question now is whether this is a temporary shift or a longer-term trend.
The company said it had “faltered” in keeping pace with a move in corporate spending from software towards datacentre infrastructure and cybersecurity, a shift driven by the global race to build out artificial intelligence capabilities. A surge in demand for AI infrastructure has sent prices soaring and created supply shortages across the industry. IBM also noted that businesses were prioritising cybersecurity given recent breakthroughs in AI hacking abilities.
The profit warning underscores the challenge facing traditional software giants as companies race to secure hardware for AI, leaving less budget for legacy systems. With IBM’s stock now trading at levels not seen since the 1980s crash, investors are questioning whether the company can adapt quickly enough.