IBM shares plunge 25 percent as AI infrastructure shift hits second quarter revenue
IBM shares suffered their worst single-day decline since 1987 after the technology company warned that corporate capital expenditure is shifting toward AI infrastructure at the expense of its core software and mainframe businesses.
IBM shares fell 25 percent on Tuesday after the company warned that second-quarter revenue will miss analyst estimates due to a sudden shift in corporate spending. The technology giant expects revenue to rise just 1 percent to $17.2 billion, falling short of the $17.86 billion consensus, while adjusted earnings per share are forecast at $2.93 against an expected $3.02.
Chief Executive Arvind Krishna explained that clients rapidly redirected their capital expenditure toward servers, storage, and memory to secure supply-constrained infrastructure ahead of expected price increases. "While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said, noting that numerous large deals failed to close.
The shortfall was concentrated in the mainframe business, which provides high-powered computing for sectors like banking and airlines. Additionally, enterprises are diverting budgets toward cybersecurity to counter new AI hacking capabilities, specifically following breakthroughs by Anthropic's Mythos model in exposing software and encryption flaws.
This warning highlights how the race to build AI infrastructure is cannibalizing traditional software and IT services across the sector. The sell-off erased approximately $70 billion from the company's $272.78 billion market valuation and dragged down peers including Microsoft, ServiceNow, Salesforce, and Intuit by 2 to 5 percent.
Shifting capital priorities
Chris Beauchamp, chief market analyst at IG Group, described the situation as an ugly moment for software stocks. "The big question will be how long the shift to infrastructure and cybersecurity lasts," Beauchamp said, warning that prolonged delays would prompt serious questions across the sector.
IBM is attempting to reduce its reliance on the cyclical mainframe market by expanding its high-margin Red Hat cloud software unit. To reassure investors, management also highlighted its quantum computing investments, including a commitment of more than $10 billion to build a large-scale system by 2029.
Despite these long-term bets and expanding AI partnerships with OpenAI, the new initiatives remain too early to offset current core business weakness. The company will formally report its second-quarter financial results on July 22.
