IBM Plunges 25% After Profit Warning, Shocks Software Sector

Shares of International Business Machines Corp. plummeted 25% in trading Tuesday, marking one of the steepest single-day declines in the company’s history and wiping out more than $50 billion in market capitalization, according to DisruptionBanking. The sell-off followed a preliminary second-quarter earnings warning that missed Wall Street estimates and triggered a rout in software stocks.

The warning came in an unusual public letter to investors from CEO Arvind Krishna, issued well before the scheduled earnings release. Krishna said the company had “faltered” in adapting to a sudden reprioritization of corporate capital expenditure.

“In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases,” Krishna wrote in the letter, reported by multiple outlets. “While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.” He added that “numerous large deals” had failed to close as expected.

**The Numbers**

IBM forecast second-quarter revenue of $17.2 billion, up just 1% year-over-year and missing the consensus estimate of $17.86 billion compiled by LSEG. Adjusted earnings per share were projected at $2.93, below the $3.02 estimate. The growth rate would be the weakest in more than a year, according to reports.

By segment, software revenue rose 5%, consulting was roughly flat at constant currency, and infrastructure revenue fell 7%, according to DisruptionBanking.

**Mainframe Weakness and Client Reprioritization**

The weakness was concentrated in IBM’s mainframe business, particularly the Z series and its associated software stack. Krishna said the flagship z17 mainframe—described on IBM’s website as a “transaction processing powerhouse” that can detect fraud in real time—had the strongest start in the program’s history but still fell short of expectations.

“Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter,” Krishna wrote in his letter, as reported by FoxBusiness. “What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack.”

Clients redirected spending toward servers, storage and memory to secure supply ahead of price hikes, a dynamic that disproportionately hit IBM’s software and mainframe lines. The company also noted that businesses were prioritizing cybersecurity spending following recent breakthroughs in AI hacking. Anthropic’s advanced Mythos model has jolted companies this year with its ability to expose flaws in existing software and encryption systems, pushing firms to ramp up security budgets, according to reports from the New York Post and IndiaToday.

**Ripple Effect Across Tech**

The warning sent shockwaves through the technology sector. The iShares Expanded Tech-Software Sector ETF fell more than 4%. Shares of Microsoft, ServiceNow, Salesforce and Intuit declined between 2% and 5%, according to multiple sources. Arm Holdings, Oracle, and Apple also traded lower.

Maria Bartiromo, host of FoxBusiness’ “Mornings with Maria,” said the stock was “the biggest drag on the Dow Industrials this morning” and noted that the warning “sent a shockwave through the tech sector.”

**Positives and Forward Look**

IBM highlighted continued momentum in its Red Hat business, which grew 11%, and reaffirmed its AI, hybrid cloud and quantum computing strategies, according to DisruptionBanking. The company pointed to more than $10 billion in investments to build the first large-scale quantum computer by 2029, a project that gained U.S. government backing in May. However, both the New York Post and IndiaToday noted that quantum efforts and AI partnerships, including with OpenAI, are still in early stages and not yet large enough to materially offset weakness in core businesses.

“This is an ugly moment for IBM and software stocks… the big question will be how long the shift to infrastructure and cybersecurity lasts,” said Chris Beauchamp, chief market analyst at IG Group, as quoted by multiple outlets. “A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”

IBM is scheduled to report full second-quarter results and hold its earnings conference call on July 22, 2026.