IBM shares drop 25%, wiping $67bn as AI shift hits Q2
IBM lost a quarter of its market value after CEO Arvind Krishna admitted the company failed to adapt quickly enough as clients diverted budgets from software to secure AI hardware.
IBM shares plunged 25% on Tuesday, marking the steepest single-day decline in the company’s 115-year history and erasing roughly $67 billion in market capitalization. The selloff followed a stark letter from CEO Arvind Krishna warning that second-quarter results would fall short of expectations.
Krishna attributed the shortfall to a sudden reallocation of corporate technology budgets. As demand from AI data centers constrains the supply of servers, storage, and memory, clients shifted their capital expenditure away from IBM's software and toward securing physical hardware ahead of expected price increases.
"What played out was worse than our expectations," Krishna wrote to investors. "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."
A significant portion of the miss stemmed from IBM’s flagship mainframe business. Despite recording the strongest start to a mainframe program in its history with the z17 launch, the company saw a shortfall in Z performance and its associated Transaction Processing software stack.
Sales cycles were further disrupted by the release of Anthropic’s cybersecurity-focused AI model, Mythos. Krishna noted that clients paused several large deals to assess the implications of the new tool, which Anthropic claims can enable hackers to identify cybersecurity vulnerabilities before companies detect them.
The crash underscores the unpredictable toll that AI infrastructure buildouts are taking on legacy technology providers. IBM previously suffered its worst stock drop since 2000 in February after Anthropic released an AI tool targeting COBOL, the aging software language central to IBM's systems.
IBM is scheduled to report formal second-quarter earnings on July 22. Analysts polled by FactSet currently expect revenue of $17.2 billion and earnings per share of $2.93, representing muted annual growth of 1.3% and 3.5%, respectively—figures that now appear highly vulnerable given the CEO's warning.
