IBM shares plunged 23% in premarket trading on July 14 after the company issued a profit warning, citing a dramatic shift in corporate spending away from software toward AI infrastructure. The tech giant reported preliminary second-quarter revenue of $17.2 billion, up just 1%, versus analyst estimates of $17.86 billion, and adjusted earnings per share of $2.93, below the consensus forecast of $3.01 to $3.02. The decline puts IBM shares on track for their worst single-day drop since the 1987 Black Monday crash.
CEO Arvind Krishna blamed the shortfall on weakness in IBM’s infrastructure and software divisions as clients redirected capital spending. “In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases,” Krishna wrote in a letter to investors, according to Reuters. “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”
Infrastructure revenue fell 7% in the quarter, while software revenue rose 5%, according to the Financial Times. Krishna acknowledged that IBM had not moved quickly enough to adapt. “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,” he said, as reported by CNBC.
The warning sent shock waves through the broader software sector, dragging down shares of Microsoft, ServiceNow, Salesforce, and Intuit by 2% to 5% each, according to Reuters. The iShares Expanded Tech-Software Sector ETF fell more than 4%. The move exposed a stark reality: even as companies flood capital into AI infrastructure and servers, they are cutting budgets for traditional software and consulting services. “This is an ugly moment for IBM and software stocks,” said Chris Beauchamp, chief market analyst at IG Group, according to Reuters. “The big question will be how long the shift to infrastructure and cybersecurity lasts.”
IBM’s warning follows a pattern of AI-driven market disruption. In February 2026, IBM shares dropped 13% after Anthropic announced that its Claude Code AI tool could automate COBOL, the legacy programming language that underpins much of IBM’s lucrative mainframe consulting business. That drop erased roughly $30 billion in market value in a single day, making it IBM’s worst day in more than 25 years at that time.
The company has spent tens of billions acquiring software and cloud businesses—including Red Hat, HashiCorp, and Confluent—in an effort to shift away from its cyclical mainframe legacy. But the AI investment cycle is now reversing that strategy by funneling corporate budgets toward computing infrastructure. Krishna noted that customers had also been “distracted” by cybersecurity concerns, citing advances in AI hacking capabilities from tools like Anthropic’s Mythos model. IBM plans to report full second-quarter results on July 22.
Sources
- Reuters — IBM’s earnings warning, capex shift details, CEO quote, stock decline percentage, software sector impact, analyst commentary from Chris Beauchamp
- CNBC — Preliminary Q2 results (revenue $17.2B, EPS $2.93), CEO Arvind Krishna quote on execution and deal closures, stock decline in premarket
- Financial Times — Infrastructure and software revenue breakdown (down 7%, up 5%), CEO statement on adaptation, stock decline percentage, comparison to 1972
- Barron’s — Stock on track for worst day since October 1987, premarket trading details
