IBM loses quarter of value as AI hardware rush diverts corporate budgets
IBM’s shares lost a quarter of their value after a profit warning showed corporations are diverting software budgets to secure AI hardware, triggering a wider tech selloff.
IBM shares plummeted more than 25 per cent on Tuesday after the technology group warned that a sudden corporate rush to buy artificial intelligence infrastructure had severely disrupted its quarterly sales. The company reported second-quarter revenue of $17.2bn, up just 1 per cent year-over-year but missing analyst expectations of $17.86bn. Adjusted earnings per share also fell short, coming in at $2.93 compared to the estimated $3.02.
The shortfall was driven by a late-quarter shift in how major enterprises are allocating their technology budgets. A global dash to build AI systems has created supply shortages and rising prices for servers, memory chips and datacentre storage. "In the last few weeks of June, we saw clients shift their quarterly capex [capital expenditure] spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," said IBM chief executive Arvind Krishna.
That sudden pivot pulled critical funding away from IBM’s higher-margin mainframe computers and associated software. These systems process millions of daily transactions for industries like banking and airlines, representing the core business IBM had relied upon for the quarter. Krishna noted that as a result, "numerous large deals" failed to close as expected.
The warning immediately infected the broader software sector, suggesting the AI hardware boom is actively cannibalising traditional software budgets. Shares in Microsoft, ServiceNow, Salesforce and Intuit all fell between 3 and 5 per cent. "This is an ugly moment for IBM and software stocks ... the big question will be how long the shift to infrastructure and cybersecurity lasts," said Chris Beauchamp, chief market analyst at IG Group.
For investors, the incident validates long-held fears that AI tools capable of automating routine work could pose an existential threat to the industry. Companies are also prioritising cybersecurity spending in response to advancing AI hacking capabilities, further squeezing out legacy software purchases. "A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks," Beauchamp said.
