IBM just had its worst day on the market in decades — and the CEO blames a spending shift he didn't see coming
IBM just had its worst day on the market in decades — and the CEO blames a spending shift he didn't see coming.
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IBM shares dropped 24% (1) in premarket trading Tuesday after the tech giant unexpectedly released preliminary second-quarter earnings a week ahead of schedule.
If the losses hold, it would mark the stock's steepest one-day decline since Black Monday in 1987 (2), when IBM fell 23.7% during the worst day in U.S. stock market history.
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"This quarter we faltered," CEO Arvind Krishna wrote in a letter to investors (3), acknowledging the company "did not adapt and move quickly enough" as customers redirected technology budgets toward AI servers, storage and memory.
IBM reported (3) preliminary second-quarter revenue of $17.2 billion, up 1% from a year earlier. Krishna said IBM expected some disruption from supply-chain constraints, but underestimated how dramatically customers would shift their spending. The shift hurt IBM's infrastructure business, delayed several large deals and weighed on quarterly results.
IBM did not immediately respond to Moneywise's request for comment.
As businesses raced to secure AI servers, storage and other data center equipment, many pulled spending away from other technology projects. The biggest hit came in the company's infrastructure division, where revenue fell 7% during the quarter, even as software revenue rose 5%.
Krishna said IBM expected some disruption from supply-chain constraints but underestimated how dramatically customers would shift their spending.
"While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said (3).
The CEO acknowledged IBM also bears responsibility for the disappointing quarter.
The shift also hurt sales of IBM's flagship z17 mainframe (4). IBM had expected the product to build on what it described as the strongest launch of any mainframe in its history. Instead, customers delayed purchases and several large deals failed to close before the end of the quarter.
The z17 is designed to handle high-volume transactions while using AI to detect fraud in real time. According to IBM, the system powers everyday financial activity, including credit card purchases, ATM withdrawals and stock trades.
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IBM's results come as businesses pour record amounts of money into AI infrastructure. Research firm IDC (5) expects global AI infrastructure spending to reach $487 billion in 2026, up 53% from a year earlier, as companies continue investing in equipment needed to power AI systems.
IBM isn't the only technology company navigating changing AI spending patterns. Microsoft, Meta, Amazon and Alphabet have collectively committed hundreds of billions of dollars (6) toward AI infrastructure this year as they race to expand computing capacity.
