IBM shares slide as AI infrastructure spending pressures software

IBM said it had “faltered” in responding to a corporate spending shift away from software and toward data-center infrastructure, a trend tied to the AI boom and tight supplies of servers, chips and networking gear. IBM’s shares fell 25% on Tuesday, while other software companies also declined.

CEO Arvind Krishna said clients moved quarterly capex late in June toward servers, storage and memory to secure constrained infrastructure before expected price increases. The company said “numerous large deals” did not close as expected, with weakness concentrated in its mainframe business. Businesses also prioritized cybersecurity after advances in AI hacking, including Anthropic’s Mythos model exposing flaws in existing software and encryption systems.

IBM expects revenue to rise just 1% to $17.2 billion in the second quarter, below analysts’ estimate of $17.86 billion, according to LSEG data. It forecast adjusted earnings per share of $2.93, compared with the estimate of $3.02. If losses hold, IBM was set to lose $70 billion from its $272.78 billion market valuation.

The company highlighted quantum computing investments, including more than $10 billion to build the first large-scale quantum computer by 2029, as well as AI partnerships including OpenAI. Those efforts remain too early to offset weakness in IBM’s core businesses ahead of second-quarter results due July 22.