IBM rarely tells Wall Street bad news early. On Tuesday it did, and the reaction was brutal. The company pre-announced preliminary second-quarter results that fell short of expectations, and its shares slid about 23%, a one-day drop that 24/7 Wall St. noted put the stock on track for its worst day since 1987. The slide erased tens of billions of dollars in market value, measured against Monday's close near $290 a share.
What IBM disclosed
The company said it expects adjusted earnings of about $2.93 a share on revenue of roughly $17.2 billion, below the roughly $3.01 a share and $17.9 billion analysts had been modeling. IBM moved to disclose the shortfall eight days before its scheduled July 22 earnings call, an unusual pre-announcement that signaled how far results had missed internal plans.
Chief Executive Arvind Krishna was blunt about it. "We faltered," he told investors, saying that a number of large deals failed to close in the quarter.
The reason: clients bought hardware instead
Krishna tied the miss to a late shift in how customers spent. In the final weeks of June, he said, clients redirected their budgets toward servers, storage and memory to lock in supply-constrained infrastructure ahead of expected price increases, much of it driven by the AI build-out. That pulled spending away from the higher-margin software and consulting work IBM has staked its strategy on, leaving deals unsigned as the quarter closed.
Ripples across the sector
The warning did not stay contained to IBM. The disclosure rattled other software and consulting names, as investors weighed whether the same budget shift toward hardware was pressuring peers. It also complicated IBM's own narrative: the company has spent the past year presenting itself as a winner from enterprise AI, and Tuesday's numbers suggested that the AI spending wave is, for now, flowing to chipmakers and hardware suppliers rather than to IBM's software and services.
Investors will get the full picture, and updated guidance for the year, when IBM reports complete results on July 22. Until then, a rare early warning has reset expectations for one of technology's oldest names.
