International Business Machines (IBM) has issued a stark warning that the current artificial intelligence boom is significantly impacting its software revenue, leading to a sharp decline in its stock price and triggering a broader sell-off in the technology sector. The company forecast second-quarter revenue below estimates, projecting $17.2 billion compared to the expected $17.86 billion. This miss has sent shares of IBM down significantly in pre-market trading.
IBM CEO Arvind Krishna attributed the shortfall to clients reallocating their capital expenditures. In the final weeks of June, many businesses prioritized spending on servers, storage, and memory to secure supply-constrained AI infrastructure ahead of anticipated price increases. This shift, Krishna stated, meant that "numerous large deals failed to close on the timelines we expected," impacting IBM's software and infrastructure performance. While IBM anticipated some supply chain impacts, the magnitude of this capital expenditure reprioritization was greater than expected.
The development underscores a growing trend in the technology sector, where substantial investments are being channeled into AI hardware and infrastructure, potentially at the expense of traditional software budgets. This move by clients signals a maturing enterprise approach to AI, focusing on the foundational elements required for AI deployment. The ripple effect was felt across the software industry, with the iShares Expanded Tech-Software Sector ETF also experiencing a notable decline.
IBM's preliminary results also indicated adjusted earnings per share of $2.93, falling short of the $3.02 estimate. The company's infrastructure revenue declined by 7 percent year-over-year, although software revenue saw a modest 5 percent increase, and consulting remained flat. IBM plans to provide a more comprehensive outlook during its full-year earnings call on July 22, 2026.
