IBM Plunge Weighs on Dow as Software Rout Spreads; CPI Cools, Bank Earnings Mixed

**U.S. stocks closed mixed Tuesday** as a historic selloff in IBM shares and broader software stocks weighed against a softer-than-expected inflation reading and robust results from major banks. The S&P 500 rose 0.26% to 7,535.12, the Nasdaq Composite climbed 0.81% to 26,083.42 on tech hardware strength, and the Dow Jones Industrial Average fell 0.19% to 52,401.14, dragged primarily by IBM, according to data cited by Nasdaq.

**IBM’s warning reshapes the AI narrative.** Shares of the technology giant plunged as much as 27% intraday, their worst single-day decline since the 1987 crash, after CEO Arvind Krishna said the company had “faltered” in keeping pace with a shift in corporate spending from software to data-center infrastructure. In a letter to investors, Krishna said clients in late June redirected capex toward servers, storage and memory to secure supply-constrained hardware ahead of expected price increases. “While we anticipated some supply-chain related impact … we did not anticipate the magnitude of the capex reprioritization,” he said. The company said “numerous large deals” failed to close as expected.

IBM expects second-quarter revenue of $17.2 billion, up just 1% year-over-year and well below the LSEG consensus estimate of $17.86 billion, marking its weakest revenue growth in more than a year. Adjusted earnings per share are forecast at $2.93, versus an estimate of $3.02. The weakness was concentrated in IBM’s mainframe business, which sells high-powered systems and software for banks and airlines. The company also cited a rise in cybersecurity spending following the release of Anthropic’s advanced Mythos AI model, which businesses see as a threat to existing encryption systems. Krishan said “these are not excuses, but they are realities.” The warning erased about $70 billion from IBM’s market valuation.

**Software stocks sold off broadly** in sympathy. Microsoft, ServiceNow, Salesforce and Intuit fell between 2% and 5%, according to Reuters. The iShares Expanded Tech-Software Sector ETF dropped more than 4%. “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 reported by multiple outlets. IBM sought to reassure investors by highlighting its $10 billion-plus commitment to building a large-scale quantum computer by 2029, but analysts noted those efforts, along with its AI partnerships including with OpenAI, are in early stages.

**CPI data offered a counterpoint.** The Consumer Price Index fell 0.4% month-over-month in June to an annual rate of 3.5%, driven principally by a 9.7% drop in gasoline prices, according to data cited by Nasdaq. The decline—the first monthly drop since the pandemic began, as noted by Zero Hedge—gave new Federal Reserve Chair Kevin Warsh more room to avoid or delay a rate hike when he testified before the House Financial Services Committee later Tuesday morning. swap markets had earlier signaled a nearly 40% probability of a July hike, with oil prices elevated on Middle East tensions.

**Bank earnings were a mixed backdrop.** Goldman Sachs Group climbed 1.3% after posting record-breaking stock-trading results for the quarter, driven by financing and its derivatives business, according to Zero Hedge. JPMorgan Chase fell 2% after raising its full-year adjusted expense outlook to roughly $107.5 billion, above a prior forecast of $105 billion. Bank of America, Wells Fargo and Citigroup also reported; their shares were mostly lower in premarket trading as investors had priced in strong results.

**Geopolitical and commodity factors remained in focus.** WTI crude traded around $80 a barrel and Brent above $86, according to market data cited by Zero Hedge, as the standoff over the Strait of Hormuz escalated. President Donald Trump reinstated a blockade of Iranian ships and demanded a 20% reimbursement for other cargo, the report said. Higher oil prices lifted the chances of a Fed rate hike, though the cooler CPI reading tempered those expectations.

**Other notable movers** included Apple, which fell 0.7% after KeyBanc cut its rating to underweight on expectations of weaker device demand and slower services revenue growth. Trex rose 3% after its second-quarter net sales forecast beat estimates. O-I Glass slipped 3% after a BofA downgrade. CoStar Group fell 5% after naming a new CFO.

The data calendar also included weekly ADP employment figures, May Treasury International Capital flows, and remarks from several Fed officials including Governor Barr, Chicago’s Goolsbee, and Governors Cook and Bowman. Warsh’s semi-annual testimony continues to be parsed for forward guidance, with many expecting a data-dependent tone. Richard Flax, chief investment officer at Moneyfarm, told Zero Hedge that geopolitics are “on the margin a negative” but that oil has not spiked dramatically, adding, “I expect Warsh will give a sort of data-driven speech rather than say too much about forward guidance.”

IBM is expected to report full second-quarter results on July 22.