Shares of International Business Machines (IBM) tumbled nearly 26%, marking the company’s biggest intraday decline in almost six decades, after it released preliminary second-quarter results that fell short of Wall Street expectations. The technology giant blamed the weak performance on customers redirecting their IT budgets toward chips, servers, and memory infrastructure to support the rapid expansion of artificial intelligence (AI).
IBM reported preliminary second-quarter revenue of $17.2 billion, significantly below analysts’ estimates of $17.9 billion. The company’s infrastructure division was the biggest drag, with revenue declining 7% during the quarter. IBM noted that the figures are preliminary and the final results, scheduled for release next week, could see minor revisions.
AI Infrastructure Spending Hurts IBM’s Core Business
The surge in global AI investments has led to an unprecedented buildout of data centers, creating shortages of semiconductors and memory chips. As businesses race to secure AI infrastructure, many customers have shifted their technology budgets toward purchasing servers, storage systems, and chips, leaving less spending for traditional enterprise software and IBM’s mainframe business.
IBM CEO Arvind Krishna acknowledged that while the company anticipated supply-chain challenges, it underestimated the extent to which customers would prioritize AI hardware over software investments. According to Krishna, the company’s flagship IBM Z mainframes and related software products accounted for much of the revenue shortfall. Several large customer deals also failed to close within the expected timeline, further impacting quarterly performance. The company also reported a 2% decline in preliminary diluted earnings, with earnings per share coming in at $2.27.
Software sector faces fresh pressure
IBM’s disappointing update weighed heavily on the broader technology sector. Shares of enterprise software companies such as Workday and ServiceNow declined around 6%, reflecting concerns that discretionary IT spending is slowing as businesses allocate more capital toward AI infrastructure.
In contrast, semiconductor companies, including Advanced Micro Devices (AMD) and SK Hynix, gained as investors continued to bet on strong demand for AI chips and memory products. Despite aggressively expanding its software business through acquisitions such as Red Hat, HashiCorp, and Confluent, IBM now faces growing investor concerns that the AI investment cycle may temporarily favor hardware providers over enterprise software companies.
Impact on the indian stock market
IBM’s sharp decline could have a mixed impact on Indian equity markets, particularly on technology stocks. In the near term, the weak results may weigh on sentiment for Indian IT companies such as Infosys, Tata Consultancy Services (TCS), HCLTech, Wipro, Tech Mahindra, and LTIMindtree, as investors reassess global enterprise technology spending. If US companies continue diverting budgets toward AI infrastructure instead of software and digital transformation projects, Indian IT firms could face slower deal conversions and delayed client spending.
However, the development also reinforces the strong global demand for AI infrastructure, which is positive for companies linked to semiconductors, data centers, electronics manufacturing, and AI hardware. Indian firms involved in electronics manufacturing, chip design, data center infrastructure, and AI-related technologies may benefit from the ongoing investment cycle.