The shares of IBM (International Business Machines) tumbled 25 per cent on Tuesday after the US technology company reported weaker-than-expected preliminary results for the second quarter. According to a report, the decline marked the company's steepest single-day stock plunge in 58 years.
The dramatic sell-off erased between $67 billion and $70 billion from IBM's market value in a single trading session. The company, established in 1911, reported revenue of $17.2 billion for the three months ending in June, representing growth of just one per cent compared with the same period a year earlier.
"We faltered... and did not adapt and move quickly enough," IBM CEO Arvind Krishna said in a letter to investors. IBM's infrastructure division, home to its flagship mainframe business, recorded a seven per cent decline in revenue. Revenue from software increased five per cent but still fell short of market expectations.
The rapid expansion of artificial intelligence infrastructure by technology companies worldwide has sharply increased demand for servers, memory chips and storage equipment. The resulting surge has pushed prices higher and led to widespread supply shortages across the sector.
IBM said that as June drew to a close, many of its major enterprise customers accelerated hardware purchases to avoid anticipated price hikes.
As a result, spending shifted away from IBM's higher-margin mainframe systems—the powerful computers relied upon by banks and large enterprises to handle millions of transactions—and the accompanying software.
"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... While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation," CEO Krishna said in a letter to investors.
The New York-headquartered company also pointed to heightened cybersecurity concerns across the technology industry as another factor affecting customer spending during the quarter. Krishna said organisations had increasingly redirected budgets toward cybersecurity as advances in AI made cyberattacks more sophisticated.
Those concerns intensified following the release of Anthropic's Mythos AI model, which has drawn attention for its ability to identify vulnerabilities in computer networks that hackers could exploit.
Consequently, many companies focused on strengthening their cyber defences instead of proceeding with previously planned technology investments.
The shift boosted cybersecurity stocks, with CrowdStrike climbing 12 percent, while Okta and Netskope each gained about 11 percent.
IBM's sharp market decline has renewed debate over how the AI revolution could reshape the outlook for traditional Software as a Service (SaaS) companies, a group that includes IBM alongside Salesforce, Adobe and Intuit.
Shares of those companies also traded lower on Tuesday following IBM's warning. Earlier this year, analysts sparked what became known on Wall Street as the "SaaS-pocalypse" after predicting that AI models could threaten the sector by offering everyday users capabilities traditionally provided by SaaS platforms.
Despite the disappointing quarter, IBM's Red Hat business delivered an 11 per cent increase in revenue. The company's non-mainframe server and storage operations also recorded strong momentum, with revenue jumping 37 per cent as customers increased purchases of that equipment.
IBM additionally unveiled Lightwell, a $5 billion initiative aimed at addressing vulnerabilities in open-source software. The project is backed by major financial institutions, including Bank of America, JPMorganChase and Goldman Sachs.
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