IBM shares tanked Tuesday after the tech giant reported worse-than-expected results and said customers were cutting back spending on its AI infrastructure and software products.
The company's stock dropped 24% at the open. Having closed at $290 per share on Monday, the stock opened just above $221 on Tuesday.
The precipitous drop in IBM's stock came after it reported a second-quarter "shortfall" in the performance of its software and infrastructure division, linked to the rollout of its new z17 mainframes, which are designed to process AI workloads.
IBM CEO Arvind Krishna said that a major factor in the lower-than-expected performance was clients cutting spending on IBM products and reprioritizing their capex spend on "servers, storage, and memory purchases" ahead of "expected price increases."
The prospect of further price rises appears to have prompted IBM's clients to prioritize hardware procurement over the software and mainframe purchases the company had anticipated.
Krishna said in his letter to investors that while IBM had expected some changes in clients' spending patterns, the company "did not anticipate the magnitude of the capex reprioritization."
"This quarter we faltered," Krishna said in a letter to investors released Tuesday. "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."
Software stocks falter on spending fears
IBM's warning and its sharp share price drop spread to other software providers, with Salesforce 4% and Microsoft dropping almost 3%. The IGV tech software ETF, which tracks a broad basket of software companies, was 2% lower.
What is driving software stocks lower is a change in spending patterns triggered by a global shortage of memory chips that has driven up hardware prices since late 2025.
Memory giants like Samsung, SK Hynix, and Micron have shifted production toward the specialized chips that power AI data centers, and that capacity is effectively sold out for 2026 under long-term contracts. The result is a squeeze on the everyday memory used by servers, PCs, and phones.
Micron's CEO has said he expects "tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints."
IBM reported revenues of $17.2 billion across the company in the second quarter, up 1%, but behind analyst expectations. Revenues in the infrastructure division were down 7%.
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Will Martin is a senior business editor with 10 years of experience in various roles at Business Insider. He works with a team of reporters and editors to cover everything from Big Tech, to the aviation industry, to fast food.Prior to working on the business news team, Will led Insider's sports coverage in the company's London bureau, publishing award-nominated work on alleged gang involvement in elite boxing, deeply-reported features on a civil war in Olympic sport modern pentathlon, and profiles of some of the biggest rising-stars in soccer.Before joining the sports team, Will spent a year as an associate editor on Insider's global news team. Before that, Will worked as a markets and economics reporter for Business Insider for more than three years.During his time with the news team, Will assigned and edited reporting and features on everything from the Boeing 737 Max crisis, to the persecution of Uyghur Muslims in China, to global geopolitics, and even a Barack Obama-themed service station in Ireland.He also personally reported on allegations of illegal mass human organ harvesting in China.Prior to working for Insider, Will gained a BA in International Relations from the University of Exeter, and an MA in Financial Journalism at City, University of London.You can reach him by email on: [email protected]Or via Twitter: @willmartin19
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