IBM Stock Plunges 25% as Q2 Revenue Misses; AI Chip Surge Redirects Customer Spending

IBM reported preliminary second-quarter revenue of $17.2 billion and adjusted earnings of $2.93 per share on Tuesday, both falling short of analyst expectations of $17.86 billion and $3.01 per share respectively. The results triggered a 24–26% stock decline in premarket and intraday trading, marking IBM's worst day since at least 1968 and approaching the 23.7% drop recorded on Black Monday in October 1987.

CEO Arvind Krishna attributed the shortfall to two primary factors. First, customers abruptly shifted their technology budgets toward purchasing servers, storage, and memory chips—hardware components in high demand for AI datacenters—to secure supply-constrained inventory before anticipated price increases. While IBM anticipated some supply chain disruption, Krishna stated the company "did not anticipate the magnitude of the capex reprioritization." This budget reallocation reduced demand for IBM's Z mainframe computers and software products. Second, industry-wide cybersecurity concerns distracted clients from closing large deals; Krishna cited concerns over Anthropic's Mythos announcement regarding AI-discovered vulnerabilities as a contributing factor.

Segment performance reflected these pressures. Infrastructure revenue declined 7%, the sharpest drop, while software revenue grew 5% and consulting remained flat. Overall sales grew only 1% year-over-year. Bright spots included an 11% sequential revenue increase for Red Hat and strong performance from recent acquisitions HashiCorp and Confluent, along with 37% growth in distributed infrastructure. Despite the quarterly miss, IBM emphasized its continued aggressive investments in emerging technologies, including a newly launched $5 billion artificial intelligence initiative called Lightwell—an open-source software vulnerability solution already adopted by Bank of America, Citi, and Goldman Sachs.

Krishna acknowledged execution lapses in a letter to investors: "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." The company noted it is still reviewing financial data and expects the full earnings report, due July 22, may differ slightly from preliminary figures. IBM's stock weakness also rippled across the software sector, with Workday and ServiceNow dropping approximately 6%, while semiconductor companies such as SK Hynix and Arm Holdings posted gains.