IBM warns its second-quarter revenue will miss estimates at $17.2 billion, triggering a 20% premarket stock drop and a wider software sector selloff. The company blames the miss on customers shifting capital from software to AI infrastructure like servers and chips to secure supply-constrained hardware. The announcement is seen as the starkest sign yet that the AI boom is negatively impacting software budgets, confirming long-held investor fears.
IBM revenue forecast miss
- ▪IBM CEO Arvind Krishna said the company "faltered" in adapting and that numerous large deals did not close as expected
- ▪Sales from IBM's infrastructure division were particularly hard hit, dropping 7% in the second quarter
- ▪IBM announced preliminary second-quarter revenue of $17.2 billion, below analyst estimates of $17.86 billion to $17.9 billion
- ▪The company's preliminary adjusted earnings per share is expected to be $2.93, below the estimate of $3.02
AI infrastructure spending shift
- ▪IBM's CEO stated the company anticipated some supply-chain impact but not the magnitude of its clients' spending reprioritization
- ▪IBM attributed its revenue miss to businesses prioritizing spending on data-center infrastructure, such as servers and chips, over software
- ▪Clients shifted capital expenditure in late June to secure supply-constrained infrastructure ahead of expected price increases
Software sector selloff
- ▪The iShares Expanded Tech-Software Sector ETF declined by more than 4% following IBM's forecast
- ▪IBM's announcement triggered a broader market rout, affecting other software stocks and Dow futures
- ▪Following its revenue warning on July 14, 2026, IBM's shares slumped 20% in premarket trading
Investor concerns about AI impact
- ▪Software investors have had long-standing fears that AI tools could represent an "existential threat" to their industry
- ▪IBM's revenue warning is considered the starkest sign yet of the AI boom's negative toll on the software sector
- ▪An IG Group analyst described the situation as an "ugly moment for IBM and software stocks."
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