IBM shares are on course for their worst trading session in decades after the tech giant warned customers are redirecting spending toward AI infrastructure and away from software.
The selloff wiped more than $50bn from IBM’s market value, sending the stock down more than 20 per cent in a single session.
The collapse dragged the Dow Jones Industrial Average lower as investors questioned whether the AI spending boom was beginning to damage parts of the broader software sector.
“This is an ugly moment for IBM and software stocks,” said Chris Beauchamp, chief market analyst at IG.
“The big question will be how long the shift to infrastructure and cybersecurity lasts. A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”
IBM said it expects second-quarter revenue of $17.2bn and adjusted earnings of $2.93 a share, both falling short of Wall Street forecasts.
Chief executive Arvind Krishna admitted the company had failed to react quickly enough after customers unexpectedly redirected budgets toward servers, storage and memory needed to power AI systems.
“These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna wrote in a letter to investors.
“In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage and memory purchases,” he added.
Krishna said IBM had anticipated some disruption from supply chain pressures but “did not anticipate the magnitude” of the shift toward AI hardware spending.
He also noted that several large software deals slipped beyond the quarter as businesses reprioritised their capital expenditure plans.
The update caught investors off guard partly because IBM rarely issues preliminary results ahead of its scheduled earnings, with full quarterly figures due the following week.
“The headline figures do not explain a reaction this extreme for a company of this size,” said analysts at XTB. “The key to understanding the market’s reaction lies in the CEO’s comments about capex.”
XTB analysts added that if IBM was experiencing meaningful pressure from customers prioritising memory and AI infrastructure spending, investors would likely assume rivals faced similar challenges.
David Morrison, senior market analyst at Trade Nation, said: “IBM suddenly lurched lower this afternoon, taking the Dow down with it, after ‘Big Blue’ issued a profits warning.”
While chipmakers and memory manufacturers such as Micron and SK Hynix have benefited from surging demand for AI hardware, software companies now face uncomfortable questions about delayed customer spending cycles.
The sell-off follows months of strong gains for IBM shares, driven by optimism surrounding its AI and quantum computing businesses, with the stock climbing from around $215 in May to nearly $300 before Tuesday’s collapse.
Earlier in 2026, IBM also faced investor concern after Anthropic launched new AI tools capable of modernising legacy software, raising questions about the long-term outlook for one of the company’s historic business lines.
Analysts at Jefferies had argued at the time that IBM’s future growth depended far more on AI software, cloud computing and automation than on its legacy mainframe operations.