IBM shares suffer historic 25% plunge amid AI concerns and missed targets

International Business Machines (IBM) experienced a historic stock market rout on Tuesday, with shares plunging 25% after the tech giant released preliminary second-quarter results that significantly missed market expectations. This dramatic drop represents the worst single-day performance in the company's trading history, surpassing the previous record decline of 23.7% on October 19, 1987.

“

In the last weeks of June we observed customers shifting their quarterly capex spend towards servers, storage and memory purchases to secure limited supply infrastructure ahead of anticipated price increases. While we expected some supply chain impact, we did not anticipate the scale of this capex prioritization shift.

IBM reported a second-quarter adjusted profit of $2.93 per share on revenue of $17.2 billion. Both figures fell short of the $3.01 per share profit and $17.86 billion in revenue projected by analysts surveyed by FactSet. The company's stock has been trading since 1916, with historical data available since 1968.

“

These conditions require our teams to execute flawlessly, and in this quarter we did not.

CEO Arvind Krishna attributed the disappointing results to weakness in the software and infrastructure segments. He explained that customers shifted their spending towards hardware, particularly memory chips and data storage, in the latter weeks of June. This pivot was driven by a desire to secure limited supply infrastructure ahead of anticipated price increases. Krishna admitted that IBM's teams did not adapt or react quickly enough to this change in customer priorities, leading to several large transactions failing to close within expected timelines.

“

We did not adjust and react sufficiently quickly, and numerous large transactions did not close in the timeframes we expected, which was the primary driver of our miss.

This significant stock drop occurs amid broader industry concerns about the disruptive potential of artificial intelligence on traditional software companies. While Krishna stated that IBM's software is not being directly disrupted by AI, investors remain wary of AI tools' existential threat to the sector. The company's performance highlights the challenges legacy tech firms face in navigating the rapidly evolving technological landscape, particularly with the surge in AI development.

“

I don't see our software being disrupted by AI.