IBM (IBM) shares were on track for their biggest single-day drop since October 1987 on Tuesday, tumbling 23% to $224.58 in premarket trading after the technology icon reported preliminary second-quarter results that fell well short of Wall Street forecasts.
The company said it expects revenue of $17.2 billion and adjusted earnings of $2.93 per share, missing analyst estimates of $17.9 billion and $3.01. A 7% decline in infrastructure revenue dragged on the top line, while software revenue grew 5% and consulting was flat.
“What played out was worse than our expectations,” Chief Executive Officer Arvind Krishna wrote in a letter to shareholders. He explained that clients abruptly redirected their quarterly budgets toward servers, storage and memory products at the end of June, rushing to beat anticipated price increases on supply-constrained infrastructure. While IBM had anticipated some shift, Krishna said, “we did not anticipate the magnitude of the capex reprioritization.”
Investors were further unsettled by Krishna’s frank acknowledgment of internal missteps. Faced with the sudden pivot, the company “failed to adapt and move quickly enough,” delaying several major deals past their expected close dates. “These are not excuses, but they are realities,” he wrote.
The shockwave rippled across the IT services sector. Infosys slumped 6.5% in premarket trading, while Accenture and Cognizant each slipped roughly 0.3%. Dan O’Regan, managing director of equity trading at Mizuho, noted that artificial-intelligence capital expenditure is clearly “crowding out other spend.” While Krishna also cited cybersecurity-related disruptions among clients, O’Regan said that “the biggest issue appears to have been internal execution.” Still, there was a bright spot: software held up well, with recently acquired HashiCorp and Confluent performing strongly, reinforcing the view that AI infrastructure spending remains robust. O’Regan cautioned, however, that the results carry a more negative signal for consulting and IT services than for the broader AI trade.
Krishna sought to balance the short-term disappointment with long-term optimism. He highlighted the company’s quantum-computing division, which remains on course to deliver a fault-tolerant machine by 2029, and noted that revenue tied to the Red Hat platform grew 11% sequentially. “We have conviction in the strength of our portfolio and the strategic transformation of our business,” he said, adding that several new initiatives are underway to restore momentum.
For a company that has reinvented itself across multiple technology cycles, the abrupt slowdown is a stark setback. Heading into Tuesday’s session, IBM shares had already slipped 2% this year, versus a 9.8% gain for the S&P 500. In February, the stock was hit by a sell-off after Anthropic unveiled a COBOL modernization tool, stoking fears of AI-driven disruption to its mainframe business. Now, with clients reordering spending priorities in the AI era and the company struggling to respond with agility, the century-old giant has shown a rare wobble.
