IBM Shares Plunge 25% After Company Says It ‘Faltered’ On AI Spending Shift

IBM shares plunged 25.23% on July 14 after the computing group warned that second-quarter revenue and adjusted earnings would fall short of market expectations.

The stock closed at $217.07 after trading as low as $213.34, producing one of IBM’s steepest single-day declines on record and erasing roughly $70 billion from its market capitalization. Microsoft, Salesforce, ServiceNow and Intuit also fell as the warning pressured software stocks across the U.S. market.

IBM expects second-quarter revenue of $17.2 billion, up 1% from a year earlier but below the $17.86 billion Wall Street estimate. Adjusted earnings are projected at $2.93 per share, compared with expectations near $3.02.

Software revenue increased 5%, consulting revenue was flat and infrastructure revenue declined 7%. IBM plans to publish its complete quarterly results on July 22.

AI Infrastructure Pulls Spending From Software

Clients redirected late-June capital expenditure toward servers, storage and memory as companies sought supply-constrained equipment before expected price increases. IBM had included some supply-chain disruption in its forecasts but “did not anticipate the magnitude of the capex reprioritization.”

“These conditions require our teams to execute perfectly, and this quarter we faltered,” CEO Arvind Krishna wrote. IBM failed to adapt quickly enough, while numerous large transactions did not close within their expected timelines and accounted for most of the quarterly shortfall.

The weakness centered on IBM’s Z mainframe division and its associated transaction-processing software. The company had expected infrastructure revenue to begin a low-single-digit annual decline following the strong launch of its z17 system, but the quarterly contraction exceeded that forecast.

Corporate spending has increasingly moved toward chips, data centers, networking equipment and memory as the AI infrastructure supercycle absorbs larger technology budgets. Semiconductor suppliers have benefited from that rotation, while software companies face pressure when customers postpone licenses, consulting projects or mainframe upgrades.

Red Hat Growth Fails To Offset Mainframe Miss

IBM retained growth across several parts of the business. Red Hat revenue increased 11%, distributed infrastructure climbed 37%, and the z17 program remained at nearly 130% of the comparable z16 cycle. Consulting signings also grew with support from generative AI contracts.

The selloff adds a large-cap software shock to wider concerns about the financing behind AI expansion. A U.S. Treasury draft on AI-market risk mapped potential pressure across technology stocks, banks, private credit and data-center financing if investment assumptions weaken.