IBM crashes 26% as AI hardware rush disrupts quarterly deals
IBM shares plunged 26% after preliminary second-quarter revenue of $17.2 billion missed expectations, as a sudden client rush to secure AI hardware stalled traditional software and consulting deals.
IBM shares plunged 26% after the company reported preliminary second-quarter revenue of $17.2 billion, falling short of the $17.9 billion consensus estimate. Diluted earnings slipped 2% to $2.27 per share, while revenue in the Infrastructure division dropped 7%. The company plans to release its final official results next week.
The shortfall was driven by a sudden reallocation of client budgets in the final weeks of June. Chief Executive Arvind Krishna said customers abruptly redirected their quarterly capital expenditure toward servers, storage, and memory. Buyers were racing to secure supply-constrained infrastructure ahead of anticipated price hikes tied to AI demand.
“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,” Krishna said. “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”
IBM also suffered from internal execution lapses as the market environment shifted. Numerous large deals failed to close on schedule, accounting for the bulk of the revenue gap. Rapidly evolving cybersecurity concerns further distracted clients and delayed purchasing decisions across industries.
“These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna acknowledged. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
Not all segments contracted. Revenue growth at Red Hat accelerated to 11%, and recently acquired companies HashiCorp and Confluent delivered strong performances. Distributed Infrastructure posted a record 37% growth on robust demand for Power servers and storage. Consulting signings also remained healthy, supported by generative AI projects.
Looking forward, IBM is accelerating efforts to improve execution while maintaining heavy investments in AI and quantum computing, targeting a fault-tolerant quantum system by 2029. The company recently launched Lightwell, an AI-powered cybersecurity platform.
“Lightwell is a $5 billion commitment backed by new frontier AI capabilities and a global force of more than 20,000 engineers,” Krishna said. Early adopters include Bank of America, BNY, Citi, Goldman Sachs, JPMorganChase, Mastercard, and Morgan Stanley.
