IBM shares plunge 25% after CEO admits company was slow to adapt to AI boom
IBM's market value fell by approximately $70 billion on Tuesday after CEO Arvind Krishna told investors that the company had failed to adapt quickly enough to the artificial intelligence (AI) boom. The sharp decline, which saw shares drop 25%, is on track to be the largest one-day loss in the company's 115-year history.
Krishna stated that several large deals failed to close as expected because clients shifted their spending priorities toward AI-related infrastructure, such as servers, storage, and memory. This reprioritisation led to a significant hit on IBM's second-quarter earnings. The company now expects revenue growth of just 1% to $17.2 billion, its weakest growth in over a year.
Analysts described the situation as an 'ugly moment for IBM and software stocks'. Chris Beauchamp, chief market analyst at IG Group, said the big question is how long the shift toward infrastructure and cybersecurity spending will last. If it persists, serious questions will be raised about software stocks.
The impact was felt across the tech sector, with shares of Microsoft, ServiceNow, Salesforce, and Intuit falling between 2% and 5% as investors grew cautious.
IBM's CEO noted that clients are also increasing cybersecurity spending in response to AI-driven threats. The company has been working to reduce its reliance on its mainframe business by focusing on high-margin products like Red Hat and investing over $10 billion in quantum computing, targeting a large-scale quantum computer by 2029.
Krishna acknowledged that while the company anticipated some supply-chain impact, it did not foresee the magnitude of the shift in capital expenditure. The warning has crystallised concerns that finite resources are being redirected toward AI infrastructure at the expense of other technologies.
