IBM's $70 billion wipeout: What triggered its worst stock crash in 58 years?
IBM stock plunged over 25%, marking a steeper one-day percentage decline than even the 1987 'Black Monday' market crash.
IBM shares suffered their biggest single-day fall on Tuesday in nearly 60 years, wiping out around $70 billion in market value after the company admitted it had "faltered" during the quarter and warned that earnings would take a bigger hit than expected.
The IBM stock plunged over 25%, marking a steeper one-day percentage decline than even the 1987 "Black Monday" market crash. The sharp sell-off came after IBM lowered its revenue and profit expectations, saying it had failed to keep pace with a rapid shift in corporate spending towards AI infrastructure.
So what exactly went wrong at one of the world's oldest technology companies?
AI IS CHANGING HOW COMPANIES ARE SPENDING
The biggest reason behind IBM's disappointing outlook is a major change in how businesses are spending their technology budgets.
According to Reuters, companies are increasingly diverting money away from enterprise software and instead rushing to buy AI infrastructure such as servers, storage systems, networking equipment and memory chips.
The shift is being driven by fears that supply-constrained AI hardware could become more expensive or harder to secure later.
IBM CEO Arvind Krishna admitted the company underestimated how quickly customers would change their spending priorities.
"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.
IBM had expected some disruption because of supply-chain constraints, but Krishna said the company "did not anticipate the magnitude of the capex reprioritisation."
IBM FAILED TO CLOSE BIG DEALS
Krishna acknowledged that IBM itself also made mistakes.
"These conditions require our teams to execute perfectly, and this quarter we faltered. 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 wrote.
He added that these were "not excuses, but realities."
The comments were unusual because CEOs rarely admit execution failures so directly.
The failure to close several large enterprise contracts became one of the biggest reasons behind IBM missing expectations.
CYBERSECURITY BECAME A BIGGER PRIORITY
IBM also said another unexpected factor hurt business.
Krishna said many customers delayed software purchases because they were increasingly focused on cybersecurity after rapid advances in AI.
He pointed to concerns created by Anthropic's Mythos AI model, which has demonstrated an ability to identify weaknesses in existing software and encryption systems.
Instead of spending on new software projects, many companies chose to strengthen their cybersecurity infrastructure first.
Reuters also reported that businesses are prioritising cybersecurity spending as AI-powered hacking capabilities become more sophisticated.
IBM'S MAINFRAME BUSINESS ALSO SLOWED
IBM's traditional mainframe business also disappointed.
The company had expected revenue from its recently launched z17 mainframe programme to slow modestly after an exceptionally strong start.
Instead, performance weakened much more than expected.
Krishna said the shortfall came from weaker-than-expected sales of IBM's Z systems and related transaction-processing software.
Mainframes remain an important business for IBM, particularly among banks, airlines and governments that rely on these high-performance systems to process millions of transactions every day.
THE NUMBERS THAT SPOOKED WALL STREET
The revised outlook disappointed investors.
IBM now expects second-quarter revenue of about $17.2 billion, representing just 1% growth from a year ago and below analysts' expectations of $17.86 billion, according to Reuters.
Adjusted earnings per share are expected to be $2.93, also below Wall Street estimates of $3.02.
If achieved, it would mark IBM's weakest revenue growth in more than a year.
The disappointing forecast triggered heavy selling in the stock.
Reuters estimated the decline would wipe out roughly $70 billion from IBM's market value.
The weakness also spread across the broader software sector, with Microsoft, Salesforce, ServiceNow and Intuit falling between 2% and 5%.
AI IS CREATING WINNERS AND LOSERS
IBM's warning also highlights a broader shift taking place across the technology industry.
For the past two years, companies have poured billions of dollars into artificial intelligence.
But instead of spending evenly across technology, many businesses are prioritising hardware needed to build AI systems before investing in software applications.
According to Reuters, concerns are also growing that AI coding tools capable of writing software automatically could slow demand for traditional software products.
Analysts believe software companies may continue to face pressure if businesses keep directing technology budgets towards AI infrastructure.
"This is an ugly moment for IBM and software stocks," Chris Beauchamp, chief market analyst at IG Group, told Reuters.
"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 SAYS ITS LONG-TERM STRATEGY HAS NOT CHANGED
Despite the setback, IBM insists its long-term plans remain intact.
Krishna highlighted several areas where the company continues to see strong momentum.
Red Hat revenue growth accelerated to 11%, while recent acquisitions including HashiCorp and Confluent delivered strong performances. Distributed Infrastructure posted its best reported growth ever, rising 37%, with a backlog of around $500 million exiting the quarter. Consulting signings also continued to grow, helped by strong demand for generative AI projects.
IBM is also betting heavily on quantum computing.
The company recently announced plans to invest more than $10 billion over the next five years in quantum computing research, manufacturing, acquisitions and ecosystem development.
Krishna said IBM remains on track to build the world's first large-scale fault-tolerant quantum computer by 2029.
IBM has also launched "Lightwell", a $5 billion cybersecurity initiative backed by more than 20,000 engineers to help organisations tackle software vulnerabilities exposed by AI. Early customers include Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Mastercard, Morgan Stanley, Visa and Wells Fargo.
IBM is expected to report its full second-quarter earnings on July 22, when investors will look for more clarity on whether the slowdown is temporary or a sign of a longer-term shift in technology spending.
For now, Wall Street's message is clear. As companies race to build AI infrastructure, technology firms that fail to adapt quickly enough risk being left behind—even companies with a history as long as IBM's.
IBM shares suffered their biggest single-day fall on Tuesday in nearly 60 years, wiping out around $70 billion in market value after the company admitted it had "faltered" during the quarter and warned that earnings would take a bigger hit than expected.
The IBM stock plunged over 25%, marking a steeper one-day percentage decline than even the 1987 "Black Monday" market crash. The sharp sell-off came after IBM lowered its revenue and profit expectations, saying it had failed to keep pace with a rapid shift in corporate spending towards AI infrastructure.
So what exactly went wrong at one of the world's oldest technology companies?
AI IS CHANGING HOW COMPANIES ARE SPENDING
The biggest reason behind IBM's disappointing outlook is a major change in how businesses are spending their technology budgets.
According to Reuters, companies are increasingly diverting money away from enterprise software and instead rushing to buy AI infrastructure such as servers, storage systems, networking equipment and memory chips.
The shift is being driven by fears that supply-constrained AI hardware could become more expensive or harder to secure later.
IBM CEO Arvind Krishna admitted the company underestimated how quickly customers would change their spending priorities.
"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.
IBM had expected some disruption because of supply-chain constraints, but Krishna said the company "did not anticipate the magnitude of the capex reprioritisation."
IBM FAILED TO CLOSE BIG DEALS
Krishna acknowledged that IBM itself also made mistakes.
"These conditions require our teams to execute perfectly, and this quarter we faltered. 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 wrote.
He added that these were "not excuses, but realities."
The comments were unusual because CEOs rarely admit execution failures so directly.
The failure to close several large enterprise contracts became one of the biggest reasons behind IBM missing expectations.
CYBERSECURITY BECAME A BIGGER PRIORITY
IBM also said another unexpected factor hurt business.
Krishna said many customers delayed software purchases because they were increasingly focused on cybersecurity after rapid advances in AI.
He pointed to concerns created by Anthropic's Mythos AI model, which has demonstrated an ability to identify weaknesses in existing software and encryption systems.
Instead of spending on new software projects, many companies chose to strengthen their cybersecurity infrastructure first.
Reuters also reported that businesses are prioritising cybersecurity spending as AI-powered hacking capabilities become more sophisticated.
IBM'S MAINFRAME BUSINESS ALSO SLOWED
IBM's traditional mainframe business also disappointed.
The company had expected revenue from its recently launched z17 mainframe programme to slow modestly after an exceptionally strong start.
Instead, performance weakened much more than expected.
Krishna said the shortfall came from weaker-than-expected sales of IBM's Z systems and related transaction-processing software.
Mainframes remain an important business for IBM, particularly among banks, airlines and governments that rely on these high-performance systems to process millions of transactions every day.
THE NUMBERS THAT SPOOKED WALL STREET
The revised outlook disappointed investors.
IBM now expects second-quarter revenue of about $17.2 billion, representing just 1% growth from a year ago and below analysts' expectations of $17.86 billion, according to Reuters.
Adjusted earnings per share are expected to be $2.93, also below Wall Street estimates of $3.02.
If achieved, it would mark IBM's weakest revenue growth in more than a year.
The disappointing forecast triggered heavy selling in the stock.
Reuters estimated the decline would wipe out roughly $70 billion from IBM's market value.
The weakness also spread across the broader software sector, with Microsoft, Salesforce, ServiceNow and Intuit falling between 2% and 5%.
AI IS CREATING WINNERS AND LOSERS
IBM's warning also highlights a broader shift taking place across the technology industry.
For the past two years, companies have poured billions of dollars into artificial intelligence.
But instead of spending evenly across technology, many businesses are prioritising hardware needed to build AI systems before investing in software applications.
According to Reuters, concerns are also growing that AI coding tools capable of writing software automatically could slow demand for traditional software products.
Analysts believe software companies may continue to face pressure if businesses keep directing technology budgets towards AI infrastructure.
"This is an ugly moment for IBM and software stocks," Chris Beauchamp, chief market analyst at IG Group, told Reuters.
"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 SAYS ITS LONG-TERM STRATEGY HAS NOT CHANGED
Despite the setback, IBM insists its long-term plans remain intact.
Krishna highlighted several areas where the company continues to see strong momentum.
Red Hat revenue growth accelerated to 11%, while recent acquisitions including HashiCorp and Confluent delivered strong performances. Distributed Infrastructure posted its best reported growth ever, rising 37%, with a backlog of around $500 million exiting the quarter. Consulting signings also continued to grow, helped by strong demand for generative AI projects.
IBM is also betting heavily on quantum computing.
The company recently announced plans to invest more than $10 billion over the next five years in quantum computing research, manufacturing, acquisitions and ecosystem development.
Krishna said IBM remains on track to build the world's first large-scale fault-tolerant quantum computer by 2029.
IBM has also launched "Lightwell", a $5 billion cybersecurity initiative backed by more than 20,000 engineers to help organisations tackle software vulnerabilities exposed by AI. Early customers include Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Mastercard, Morgan Stanley, Visa and Wells Fargo.
IBM is expected to report its full second-quarter earnings on July 22, when investors will look for more clarity on whether the slowdown is temporary or a sign of a longer-term shift in technology spending.
For now, Wall Street's message is clear. As companies race to build AI infrastructure, technology firms that fail to adapt quickly enough risk being left behind—even companies with a history as long as IBM's.
