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IBM shares plunged about 25% after the company released weaker-than-expected preliminary second-quarter results, marking its steepest single-day stock decline in decades. The selloff followed disappointing revenue growth and an admission from CEO Arvind Krishna that the company failed to respond quickly enough to changing customer spending patterns driven by the artificial intelligence boom.
The technology giant reported revenue of $17.2 billion for the quarter ended June, up just 1% from a year earlier but below analysts’ expectations. Adjusted earnings per share also missed estimates, prompting a sharp market reaction.
In a letter to investors, Krishna acknowledged that IBM underestimated how rapidly enterprise customers would redirect technology budgets toward AI infrastructure such as servers, storage systems, and memory hardware.
“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough,” Krishna wrote, adding that several large deals also failed to close within the expected timeline, further weighing on the company’s performance.
The company had expected supply-chain constraints to affect demand, but said customers accelerated purchases of AI infrastructure, reducing spending on software and mainframe-related products during the quarter.
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IBM’s infrastructure division posted a 7% decline in revenue, while software revenue grew 5%, slower than market expectations. Consulting revenue remained largely flat, reflecting cautious enterprise spending.
The results highlight a broader shift across the technology industry, where businesses are prioritizing investments in AI hardware and data center infrastructure before expanding software deployments. Analysts believe the trend could pressure other enterprise software companies in the coming quarters.
Despite the disappointing quarter, IBM said several parts of its business continued to perform well. Red Hat recorded 11% revenue growth, while recently acquired companies, including HashiCorp and Confluent, delivered strong results. The company also said its Distributed Infrastructure business achieved record performance, supported by strong demand for Power servers and storage systems, with a backlog of around $500 million exiting the quarter.
IBM maintained that its long-term AI strategy remains intact. Still, the latest results underscore how rapidly changing enterprise priorities are reshaping the technology industry as companies race to build AI infrastructure.
