IBM Plunges 25% as Clients Pivot Spending to AI
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- IBM stock closed down 25.21% on Tuesday — its worst drop since at least 1968 — after the company preannounced adjusted EPS of $2.93 and revenue of $17.2 billion, well below analyst expectations of $3.02 EPS and $17.86 billion in revenue.
- CEO Arvind Krishna said clients shifted quarterly capital expenditures toward servers, storage, and memory purchases to lock in supply ahead of expected price increases, a reprioritization IBM 'did not anticipate the magnitude of' and that hit its z17 mainframe business far harder than the low-single-digit decline it had prepared for.
- IBM attributed part of the shortfall to the global memory shortage, with Krishna noting the shift accelerated 'in the last few weeks of June.'
- IDC's Ashish Nadkarni wrote that the mainframe business isn't collapsing but warned IBM 'is not isolated from the strategic reallocation of enterprise budgets' toward AI adoption, a stance suggesting the sell-off may overstate the structural damage.
- IBM stock had been down just 4.8% year-to-date heading into Tuesday and is now off 26% for the year, with competitors Oracle (-33%), Microsoft (-20%), and Accenture (-50%) also nursing steep YTD losses.
- IBM will hold its quarterly earnings call on July 22, where investors will look for updated guidance on mainframe demand and the pace of the AI-driven capex reallocation.
Why it matters: IBM's 25% wipeout marks the steepest drop in nearly six decades and signals that even legacy infrastructure giants aren't insulated from enterprises diverting budgets toward AI hardware. The fact that the miss stems from clients pre-buying memory and servers — not abandoning mainframes outright — means the damage may be cyclical, but investors clearly aren't rewarding IBM's exposure to the AI buildout when it comes at the expense of core software and mainframe revenue.
