IBM Shares Suffer Record One-Day Drop After Weak Preliminary Results and Earnings Warning

IBM shares plunged 25% on Tuesday after the technology company issued preliminary second-quarter financial results that fell below Wall Street expectations. The sell-off marked the largest single-day decline in the company's history, surpassing the previous record set during the 1987 stock market crash, as investors reacted to weaker earnings and a disappointing outlook.

The company reported adjusted earnings of $2.93 per share on revenue of $17.2 billion, missing analysts' forecasts of $3.01 per share and $17.86 billion in revenue. The weaker-than-expected performance contrasted sharply with IBM's strong first-quarter results, when software growth helped the company exceed market estimates.

Chief Executive Officer Arvind Krishna attributed the disappointing quarter primarily to softness in IBM's software and infrastructure businesses. According to Krishna, many enterprise customers shifted their capital spending toward servers, storage systems and memory chips in the final weeks of June as they sought to secure AI infrastructure before anticipated price increases and ongoing supply constraints.

Krishna acknowledged that IBM had underestimated the scale of this shift in customer spending. While the company expected some impact from supply chain dynamics, management said it failed to adapt quickly enough as customers reprioritized investments. Several large software and consulting deals were delayed beyond the expected closing timeline, accounting for much of the revenue shortfall.

The results also reflect broader changes taking place across the technology industry as artificial intelligence infrastructure spending accelerates. Demand for memory chips and high-performance computing equipment has surged, benefiting companies such as Micron and SK Hynix, while some enterprise software providers face increased scrutiny over customer spending priorities.

Addressing investor concerns, Krishna argued that IBM's software business is not being displaced by artificial intelligence itself. Instead, he suggested that customers are temporarily delaying new software commitments while reassessing technology budgets amid the rapid expansion of AI infrastructure and cybersecurity investments. Nevertheless, the disappointing quarter highlights the growing challenge for enterprise software companies as businesses increasingly allocate larger portions of their technology budgets toward AI-related hardware and infrastructure.