IBM shares fell sharply on Tuesday after the company said its second-quarter revenue is likely to come in below Wall Street estimates. The company expects revenue of $17.2 billion for the quarter, according to preliminary results. Analysts were expecting revenue of $17.86 billion, according to LSEG data.
IBM's stock fell 25.06% to $217.41.
IBM also expects adjusted earnings per share of $2.93, lower than analysts’ estimate of $3.02.
The stock fell as much as 23% in premarket trading after the update. The drop also hit other software stocks, with Microsoft, ServiceNow, Salesforce and Intuit falling between 3% and 5%. The iShares Expanded Tech-Software Sector ETF was down more than 4%.
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The weak forecast comes as companies shift more of their technology budgets towards artificial intelligence infrastructure such as servers, storage and memory. That has reduced spending on traditional software products.
IBM CEO Arvind Krishna said in a letter to investors that clients moved their quarterly capital spending towards servers, storage and memory in the last few weeks of June. He said companies were trying to secure infrastructure supply ahead of expected price increases.
Krishna said IBM had expected some supply-chain impact, but not the scale of the shift in spending. He also said the company “faltered” in adapting quickly enough to changing market conditions, which led to several large deals not closing as expected.
The update has added to concerns in the software sector. Investors have already been worried that artificial intelligence tools could reduce demand for some software products by automating routine work. IBM’s forecast showed another pressure point: even AI-related spending is not helping all technology companies equally.
While chipmakers, server companies and memory suppliers have benefited from the AI infrastructure boom, software companies are facing more difficult budget decisions from enterprise customers.
IBM’s warning suggests that customers are prioritising hardware and data-centre spending first, while delaying or reducing some software deals.
