IBM stock sank 21.86% in Tuesday’s pre-market session to $226.80 after International Business Machines released preliminary second-quarter results below Wall Street expectations. The slide erased nearly $60 billion in market value from Monday’s $290.23 close.
The rare pre-announcement came eight days before the company’s scheduled earnings call. Investors must now wait until July 22 for complete results and updated full-year guidance.
IBM Stock Reels From a Rare Warning
IBM disclosed preliminary revenue of $17.2 billion, up 1% from a year earlier but short of the $17.86 billion analysts polled by FactSet expected. Adjusted earnings of $2.93 per share also trailed the $3.01 consensus.
Shares initially sank 18% on the warning, before losses deepened past 21%. That puts IBM on track for its worst single-day drop since 2000, when the dot-com bust crushed tech valuations.
The collapse also reverses the recent IBM stock rally that pushed shares above $300 in early June. At $226.80, the stock sat closer to its 52-week low of $212.34 than its high of $332.46.
Infrastructure revenue fell 7%, software grew 5%, and consulting stayed flat. The hardware slump stung most because IBM entered the quarter wrapping the launch of z17, its newest mainframe.
These heavy-duty computers, which banks rely on to process transactions, had just delivered the strongest launch in IBM’s history.
UBS analyst David Vogt estimated that Transaction Processing, the software tied to those mainframes, appears to have fallen by mid-teens percentages year-over-year. The unit generates nearly 30% of IBM’s software segment, making the slump hard to hide.
CEO Arvind Krishna blamed a late-quarter shift in client spending the company failed to size correctly, alongside slipped deals and client distraction from industry-wide cybersecurity concerns.
“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 wrote to investors.
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AI Capex Squeeze Fuels Wider Tech Fears
The warning quickly spread across enterprise software. Workday dropped 10% and Salesforce shed more than 6% as traders priced in the same budget shift, according to Bloomberg.
Goldman Sachs analysts told clients the miss plays directly into the software bear case, with most software names down 3% or more in early pre-market trade. UBS’s Karl Keirstead had flagged AI budget redirection as a risk for SaaS and IT services firms well before Tuesday.
Hardware, meanwhile, keeps winning the fight for tech budgets. Semiconductors beat Big Tech in the first half, TSMC posted record AI chip revenue in June, and memory glut fears rattled SanDisk, Micron, and Seagate this month.
James Chanos, the short seller who famously called Enron’s collapse, argued IBM’s weakness reflects more than deal timing.
“What $IBM will NOT admit is that it is highly at risk from direct enterprise AI-adoption, as $SBUX admitted last week,” Chanos posted on X, referencing a similar admission from Starbucks.
IBM, however, highlighted proof that the hardware wave also runs through its own product lines. Distributed infrastructure, the division that sells servers and storage, climbed a record 37% with a backlog near $500 million.
Its Red Hat software arm accelerated to 11% growth. Vogt cautioned that Red Hat’s momentum may not offset prolonged Transaction Processing weakness. He expects investors to reassess IBM’s software outlook for 2027 and beyond, with pressure building for larger acquisitions.
Krishna also flagged a $10 billion, five-year quantum plan, deepening the wider US quantum computing push.
The July 22 call will show whether the spending shift was a one-quarter timing issue or a lasting squeeze on corporate software budgets.
Until then, IBM must convince investors that its AI and quantum bets can outrun the drag from its older businesses.
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