IBM shares posted their steepest one-day drop in decades after the company reported disappointing preliminary second-quarter results, with CEO Arvind Krishna acknowledging that the company failed to adapt quickly enough to the artificial intelligence spending boom. The selloff erased billions of dollars in market value and sent shockwaves through the technology sector.
Revenue Miss and Profit Warning
The technology giant reported revenue of $17.2 billion for the quarter ended June, up just 1% from the same period last year but below analysts’ expectations. Adjusted earnings per share also missed estimates, triggering a sharp market reaction. IBM shares fell about 25% in a single trading session, marking the steepest stock decline for the company in decades.
CEO Admits Execution Failures
In a letter to investors, Krishna said IBM underestimated how rapidly enterprise customers would redirect technology budgets toward AI infrastructure such as servers, storage systems, and memory hardware.
“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough,” Krishna wrote.
He added that several large deals also failed to close within the expected timeline, further weighing on the company’s performance. IBM had anticipated supply-chain constraints would limit demand, but instead customers accelerated purchases of AI infrastructure, reducing spending on software and mainframe-related products.
Spending Shift Hurts Software Business
IBM’s infrastructure division posted a 7% decline in revenue, while software revenue grew 5%, slower than market expectations. Consulting revenue remained largely flat, reflecting cautious enterprise spending.
The results highlight a broader industry shift: businesses are prioritizing investments in AI hardware and data center infrastructure over traditional software deployments. Analysts warn the trend could pressure other enterprise software companies in the coming quarters.
Bright Spots in the Quarter
Despite the overall disappointment, certain parts of IBM’s business performed well. Red Hat recorded 11% revenue growth, while recently acquired companies HashiCorp and Confluent delivered strong results. IBM also noted that its Distributed Infrastructure business achieved record performance, supported by demand for Power servers and storage systems, with a backlog of approximately $500 million exiting the quarter.
IBM maintained that its long-term AI strategy remains intact, but the latest results underscore how rapidly changing enterprise priorities are reshaping the technology industry as companies race to build AI infrastructure.