IBM stock plunges 23% after Q2 miss, CEO cites AI capex shift

IBM shares plunged 23% on Tuesday after the company released preliminary second-quarter results that fell short of estimates. Chief Executive Arvind Krishna attributed the shortfall to customers shifting capital spending toward AI-related servers and memory, which weighed on software and infrastructure revenue.

The company reported adjusted earnings of $2.93 a share on revenue of $17.2 billion, below analysts’ forecasts of $3.01 a share and $17.86 billion in revenue, according to FactSet. The decline in the stock was the largest single-day drop for IBM in decades.

Software revenue rose 5% in the quarter. Consulting revenue was broadly flat, up 1% at constant currency. Infrastructure revenue fell 7%.

Krishna wrote that in the last weeks of June clients shifted quarterly capital expenditures toward servers, storage and memory to secure supply-constrained infrastructure ahead of expected price increases. He said IBM had expected some supply-chain impact but not the magnitude of the reprioritization and acknowledged execution issues played a role.

IBM will provide a full breakdown and updated full-year outlook on a conference call scheduled for July 22.

Demand for high-performance computing equipment and memory tied to AI deployments has affected product mix across enterprise technology vendors. IBM’s revenue has generally grown in the single digits while some large-cap tech companies have reported double-digit revenue gains.

Earlier this year, IBM shares fell more than 20% in February after Anthropic introduced a tool intended to modernize COBOL, a programming language used in many IBM mainframe systems.

Krishna highlighted new products and investments aimed at supporting IBM’s strategy. He described Lightwell, a platform developed with Red Hat after the introduction of IBM’s Mythos model, as backed by a $5 billion commitment and supported by more than 20,000 engineers. IBM announced general availability for Lightwell on July 8 and listed early adopters including major banks and payment companies.

On quantum computing, IBM signed a letter of intent with the U.S. Department of Commerce to build Anderon, described by the company as a pure-play quantum wafer foundry. The project is expected to be supported by $1 billion in CHIPS Act incentives and $1 billion in cash from IBM. The company plans to invest more than $10 billion in quantum research, manufacturing expansion, acquisitions and ecosystem development over the next five years and said it remains on track to deliver its first large-scale fault-tolerant quantum computer by 2029.

Management linked the preliminary quarter shortfall to customer timing and product-mix changes tied to AI infrastructure demand, combined with internal execution problems. Investors and analysts will look to the July 22 call for a more detailed segment breakdown and updated guidance for the year.