IBM shares plunge 26% after Q2 earnings forecast falls short of estimates

Shares of IBM came under heavy selling pressure on Tuesday, 14 July, plunging 26% to $215.67 apiece after the company reported preliminary second-quarter sales below analysts' estimates, with Chief Executive Officer Arvind Krishna saying customers were holding back spending.

Preliminary second-quarter revenue came in at $17.2 billion, IBM said in a statement on Tuesday, below analysts' estimates of $17.9 billion.

Sales from the company's infrastructure division were hit particularly hard, falling 7%. IBM is expected to report second-quarter results on 22 July.

IBM added that it is still reviewing its books and that the final results may differ slightly from the preliminary figures.

Meanwhile, if the losses persist through the close, the stock is on track to post its biggest intraday decline since the 1980s.

The weak update also weighed on other enterprise software companies, with Workday shares falling more than 8% and ServiceNow declining about 7.7%.

CEO flags spending shift

In a letter to investors, Krishna said the weaker-than-expected performance in IBM's software and infrastructure businesses was driven by customers shifting their spending towards servers, storage and memory ahead of anticipated price increases.

He said the company had expected supply chain disruptions to weigh on its results. Memory chip shortages, fuelled by the artificial intelligence (AI) boom, have rippled across global manufacturing.

However, IBM failed to anticipate that customers would also divert spending away from its software and infrastructure products towards servers, storage and memory to hedge against expected price increases.

Investor concerns linger

Software investors have long been concerned that AI tools capable of automating routine tasks could pose a long-term threat to the industry.

Tuesday's preliminary results also suggested that the ongoing surge in spending on AI infrastructure—including servers, chips and networking equipment—may be coming at the expense of software budgets.

In February, IBM shares came under sharp selling pressure after AI startup Anthropic PBC unveiled a tool that it said could help modernise a legacy programming language widely used on IBM mainframes.

IBM, like most software providers, has integrated AI into its products and touted its ability to provide customers with the latest technology. The company has tried to convince investors that AI will strengthen its business, not replace it.

IBM share price trend

The company's shares have come under pressure in recent weeks following a prolonged rally. After ending June with a 6% decline, the selling intensified further in July, with the stock falling more than 22%, based on today's intraday low.

Between May 2023 and November 2025, the stock remained on a strong upward trajectory. Although it witnessed intermittent bouts of volatility along the way, it consistently recovered from corrections and resumed its upward momentum.

During this period, the stock rallied from $128.59 to $308, delivering returns of nearly 139%. IBM has generated positive annual returns in each of the last five years but lost 25% of its value so far this year.

(With inputs from Bloomberg and Reuters)

Disclaimer: We advise investors to check with certified experts before making any investment decisions.