IBM shares collapsed 25 percent on Tuesday, the steepest single-day decline since at least 1987, after the company disclosed preliminary second-quarter revenue of $17.2 billion — well below the $17.9 billion analysts had expected. The drop erased roughly $67 billion in market capitalisation and sent shockwaves through the technology sector, with the iShares Expanded Tech-Software ETF falling more than 4 percent and shares of Microsoft, ServiceNow, Salesforce and Intuit declining between 3 and 5 percent.

The sell-off was triggered by a letter to investors from Chief Executive Arvind Krishna, who said the quarter “played out worse than our expectations” and acknowledged that the company “did not adapt and move quickly enough.” Krishna described how, in the final weeks of June, corporate clients abruptly redirected quarterly capital expenditure toward servers, storage and memory chips to lock in supply ahead of anticipated price increases driven by the global build-out of AI data centres. While IBM had anticipated some supply-chain friction, it underestimated the magnitude of the shift, which hit sales of its new z17 mainframe systems and associated transaction-processing software particularly hard. Infrastructure revenue fell 7 percent, and several large deals failed to close on schedule.

The warning crystallised a fear that has been building in markets for months: that the artificial intelligence boom is not lifting all technology companies equally. Viewed from New York, the results suggested that enterprise budgets are being cannibalised as hardware procurement takes priority over software and services. Analysts in London noted that the dynamic extends beyond IBM, with the global memory shortage — exacerbated by manufacturers like SK Hynix, Samsung and Micron allocating capacity to high-bandwidth chips for AI — forcing painful trade-offs across corporate IT departments. Shares of memory makers surged in response, with SK Hynix rising more than 20 percent on the Nasdaq, while cybersecurity firms such as CrowdStrike and Palo Alto Networks also gained after Krishna cited rapidly evolving industry-wide security concerns, linked by Barclays analysts to the launch of Anthropic’s Mythos model, as a further distraction for clients.

Krishna stressed that the company’s performance in other areas showed strength: Red Hat revenue growth accelerated to 11 percent, recently acquired businesses performed well, and Distributed Infrastructure posted a record 37 percent increase. IBM also pointed to its new Lightwell cybersecurity platform, a $5 billion commitment backed by more than 20,000 engineers, with early adopters including Bank of America, JPMorgan Chase and Goldman Sachs. Still, the preliminary numbers intensified questions about whether legacy software vendors can sustain growth when customers are funnelling an ever-larger share of technology spending into physical infrastructure.

IBM will publish final second-quarter results on 22 July. Investors will scrutinise whether the spending patterns Krishna described represent a temporary budget shuffle — as some analysts in Paris suggested — or a more durable realignment that continues to pressure software revenues while rewarding hardware and security providers.