IBM is staring at what could be the biggest one-day loss in its 115-year history after CEO Arvind Krishna admitted the company was slow to respond to the rapid changes brought by the artificial intelligence
(AI) boom.
The admission sent investors rushing for the exit on Tuesday, dragging IBM shares down 25%. If the losses remain, the technology giant is set to lose nearly $70 billion from its market value of $272.78 billion, making it one of the worst trading days the company has ever seen, worse even than the 1987 “Black Monday” crash.
Speaking to investors, Krishna said IBM had “faltered” and failed to “adapt and move quickly enough” as AI began reshaping customer spending across the technology industry.
AI Boom Changed Where Clients Are Spending
IBM said several large deals it had expected to close during the second quarter failed to go through after customers shifted their budgets towards AI-related infrastructure.
The Armonk, New York-based company, which provides enterprise software, IT consulting services and mainframe computers to governments and large businesses, now expects the change in spending patterns to weigh on its second-quarter performance.
Explaining what happened in the closing weeks of June, Krishna said: “In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”
He added: “While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation.”
Traditional Software Budgets Took A Back Seat
Krishna’s comments highlighted a broader trend that has been building across the technology sector. As businesses race to adopt AI, many are redirecting technology budgets towards servers, chips, storage and networking equipment needed to support AI systems.
That has left fewer resources for traditional software investments, an area where IBM admitted it did not move quickly enough to respond to changing customer priorities.
The company also expects weakness in its mainframe business, which supplies high-powered computers and software used by banks, airlines and other large enterprises to process critical transactions.
Cybersecurity Is Becoming A Bigger Priority
IBM also said businesses are increasing spending on cybersecurity as AI makes cyber threats more advanced.
Krishna pointed to Anthropic’s advanced Mythos model, saying it has demonstrated the ability to uncover vulnerabilities in existing software and encryption systems.
Warning Ripples Across The Software Sector
The market reaction was not limited to IBM. The company’s warning also weighed on other software stocks, with Microsoft, ServiceNow, Salesforce and Intuit each falling between 2% and 5%.
Analysts said IBM’s update reflected a wider shift taking place across the technology industry.
“This is an ugly moment for IBM and software stocks… the big question will be how long the shift to infrastructure and cybersecurity lasts,” Reuters quoted Chris Beauchamp, chief market analyst at IG Group, as saying.
“A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”
IBM Sticks To Its Long-Term Plans
For the past few years, IBM has been trying to reduce its reliance on its cyclical mainframe business by expanding Red Hat, its higher-margin business that allows companies to run applications across multiple cloud providers.
The company also reiterated its focus on quantum computing, highlighting its commitment to invest more than $10 billion to build the first large-scale quantum computer by 2029 as governments look to reduce dependence on China in critical technology supply chains.
At the same time, IBM acknowledged that its investments in quantum computing and its AI partnerships, including with OpenAI, are still at an early stage and are not yet large enough to offset weakness in its core software and infrastructure businesses.
Focus Shifts To Quarterly Results
Investors will now be watching IBM’s second-quarter earnings, due on July 22, for a clearer picture of how the changing AI spending environment has affected the company’s business.
According to LSEG data cited by Reuters, IBM is expected to report quarterly revenue of about $17.2 billion, below analysts’ estimate of $17.86 billion.
