Key facts
- IBM shares are poised for one of their worst trading days, down over 20% after a warning about customer spending shifts.
- The company anticipates second-quarter revenue of $17.2bn and adjusted earnings of $2.93 per share, missing Wall Street expectations.
- Customers are redirecting budgets towards AI hardware like servers, storage, and memory, impacting IBM's software sales.
- IBM's market value dropped by more than $50bn following the announcement.
- The decline in IBM's stock pulled the Dow Jones Industrial Average lower.
IBM shares are facing a significant selloff, potentially one of the worst in decades, after the technology company issued a warning that customers are shifting their spending away from software and towards artificial intelligence infrastructure.
The company announced it expects second-quarter revenue to be $17.2bn and adjusted earnings per share to be $2.93, both figures falling short of Wall Street's projections. This news led to a more than 20% drop in IBM's stock price, erasing over $50bn from its market capitalization and dragging down the Dow Jones Industrial Average.
IBM CEO Arvind Krishna acknowledged that the company did not react quickly enough to the unexpected redirection of client budgets towards servers, storage, and memory needed for AI systems. He noted that in the final weeks of June, there was a noticeable shift in client capital expenditure towards these hardware components, and several large software deals were postponed beyond the quarter.
Analysts suggest that if IBM is experiencing such pressure, its competitors in the software sector may face similar challenges. The sharp decline comes after a period of strong gains for IBM shares, fueled by optimism surrounding its AI and quantum computing ventures. Earlier in the year, concerns were also raised about the long-term outlook for some of IBM's legacy software businesses due to advancements in AI tools capable of modernizing older software.