Key Moments
- IBM projected second-quarter revenue of $17.2 billion and adjusted EPS of $2.93, both below analysts’ expectations.
- The company reported that clients redirected capital spending toward AI-related data-center hardware, pressuring software budgets.
- IBM shares sank 22%, contributing to a broader software sector selloff that pulled down major peers and a key tech ETF.
AI Infrastructure Spend Hits IBM Outlook
IBM warned that it has struggled to keep pace with a rapid reallocation of corporate technology budgets toward data-center infrastructure and away from software, and it forecast second-quarter revenue below Wall Street estimates. The update was presented as one of the clearest indications so far that rising investment in artificial intelligence infrastructure is weighing on software spending.
Following the announcement, IBM’s stock dropped 22% and sparked a sharp pullback across the software sector. Dow futures also moved lower, while the iShares Expanded Tech-Software Sector ETF declined more than 4%.
Customer Capex Priorities Shift Toward Hardware
Management highlighted a marked change in client behavior late in the quarter, with companies seeking to secure constrained infrastructure capacity.
“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,” IBM CEO Arvind Krishna said in a letter to investors.
“While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization,” Krishna said, adding that the company had “faltered” in adapting quickly enough and that “numerous large deals” had failed to close as expected.
Preliminary Second-Quarter Guidance vs Estimates
IBM released preliminary figures for its second-quarter performance that came in below analyst projections compiled by LSEG.
| Metric | IBM Preliminary Outlook | Analyst Estimate (LSEG) |
|---|---|---|
| Revenue | $17.2 billion | $17.86 billion |
| Adjusted earnings per share | $2.93 | $3.02 |
The company framed the shortfall as directly linked to clients reallocating capital expenditures to servers, chips, networking gear, and other hardware tied to AI and data-center buildouts, which in turn constrained software purchasing.
Sector-Wide Pressure on Software Names
The warning reverberated across the broader software and technology complex. Microsoft, ServiceNow, Salesforce and Intuit declined between 3% and 5% as investors reassessed the impact of AI-driven infrastructure demand on software valuations.
“This is an ugly moment for IBM and software stocks… the big question will be how long the shift to infrastructure and cybersecurity lasts,” said Chris Beauchamp, chief market analyst at IG Group.
“A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”
Upcoming Earnings Report
IBM is expected to report its full second-quarter results on July 22, when investors will receive more detail on the extent of delayed software deals and management’s view on how long the current spending pattern could persist.
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