IBM had its worst trading day in decades after admitting AI spending is eating its software sales

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IBM shares collapsed nearly 25 to 26 percent, one of the company's worst single day declines in decades, after it released preliminary second quarter results a week early showing enterprise customers had unexpectedly redirected their IT budgets away from software and mainframe deals toward AI infrastructure like servers and memory chips

IBM now expects roughly 17.2 billion dollars in second quarter revenue against a Wall Street consensus of about 17.86 billion, with adjusted earnings of 2.93 dollars per share versus the 3.02 dollars analysts had modeled. CEO Arvind Krishna said the company had anticipated a low single digit decline in its z17 mainframe business but that the actual shortfall was far worse, telling investors that in the final weeks of June clients shifted their capital expenditure toward servers, storage and memory purchases specifically to secure supply constrained infrastructure ahead of expected price increases

Software revenue still grew about 5 percent, but that fell well short of the roughly 10 percent growth analysts had built into their models. Krishna described the company as having faltered in its execution, acknowledging IBM failed to adapt quickly enough to the sudden reprioritization of client spending, which caused a number of large deals to slip past the quarter's close entirely

The selloff spread well beyond IBM itself, dragging down Salesforce, Adobe, Intuit and ServiceNow as investors reassessed enterprise software demand broadly. IBM's chief competitors haven't fared much better this year either, Oracle is down 33 percent year to date and Accenture has fallen 50 percent. The warning intensifies a growing fear across the software sector that the AI infrastructure boom may be cannibalizing budgets from other parts of enterprise technology spending rather than simply adding new demand on top of it. IBM holds its full earnings call on July 22

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