Shares in IBM plunged more than 25% on Tuesday after the US tech giant released disappointing preliminary second-quarter results. IBM’s stock was on track for an even steeper single-day decline than it suffered during the 1987 “Black Monday” crash.
IBM had issued a profit warning and blamed shifts in corporate customers’ spending. The company said revenue for the three months ending in June came in at $17.2bn, up just 1% year-over-year.
The company said it had “faltered” in keeping pace with a move in corporate spending from software towards datacentre infrastructure and cybersecurity, and forecast second-quarter revenue below estimates, in a sign of the impact of AI on the sector.
The warning triggered a slump of more than 25% in IBM’s shares and a selloff in the broader software sector on Tuesday. Microsoft, ServiceNow, Salesforce and Intuit fell between 3% and 5%.
A global rush by tech companies to build out artificial intelligence infrastructure has sent demand for servers, memory chips and storage soaring – driving up prices and creating supply shortages across the industry.
IBM said that toward the end of June, many of its big corporate customers rushed to buy that hardware to get ahead of expected price increases.
That rush pulled spending away from IBM’s higher-margin mainframe computers and related software, which process millions of daily transactions for industries such as banking and airlines – the products the company had been counting on. It also noted that businesses were prioritizing cybersecurity spending given recent breakthroughs in AI hacking abilities.
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Arvind Krishna, the IBM chief executive, said in a letter to investors, “In the last few weeks of June, we saw clients shift their quarterly capex [capital expenditure] spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”
He added that “numerous large deals” had failed to close as expected.
The company’s expected revenue of $17.2bn for the second quarter paled in comparison to $17.86bn forecast by analysts.
Adjusted earnings per share is expected to be $2.93, compared with analysts’ estimate of $3.02.
Chris Beauchamp, the chief market analyst at IG Group, said: “This is an ugly moment for IBM and software stocks … the big question will be how long the shift to infrastructure and cybersecurity lasts.”
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.
“A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks,” Beauchamp said.
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