‘We faltered’: IBM CEO’s candid AI admission sparks biggest crash in 115 years
An Indian-origin CEO’s candid admission wiped nearly $70 billion off a global tech company’s market value, leaving shareholders poorer and putting IBM on course for the largest one-day loss in its 115-year hory.IBM chief Arvind Krishna on Tuesday told investors that the Armonk, New York-headquartered company had “faltered” and failed to “adapt and move quickly enough” amid an artificial intelligence (AI) boom. IBM counts large corporations and governments among its clients, selling them mainframe computers, enterprise software and IT consulting services.Several large deals failed to close as expected as AI reshaped client spending priorities. That put IBM on course to report a significant hit to its second-quarter earnings, underscoring AI’s growing impact on the technology sector.
IBM was set to lose billion from its 2.78 billion market valuation, if losses hold. Stocks of other software companies also fell as the news spooked investors. (AP Photo)
The company’s shares tanked 25% soon after the warning and were on track for a single-day decline sharper than even during the 1987 “Black Monday” crash. IBM was on course to lose about $70 billion from its $272.78 billion market value if the losses held. Stocks of other software companies also fell as the news spooked investors. Microsoft, ServiceNow, Salesforce and Intuit all fell between 2% and 5%.
“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,” CEO Krishna said in a letter to investors.
“While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation,” Krishna said.
Wasn’t AI impact known?
The IBM CEO’s warning crystallised what many had suspected: resources are finite and companies are choosing to spend money on supply-constrained servers, chips and networking gear in an AI-crazed environment.Story continues below this ad
This meant resources routed away from other technologies. IBM was not quick enough to adapt to the shift in customer spending.
The company is expected to report weaker performance in its mainframe business, which provides high-powered computers and software that process transactions for banks, airlines and other large enterprises.
Krishna also said businesses were prioritising cybersecurity spending as AI made cyberattacks more sophicated. One example is Anthropic’s advanced Mythos model, which has demonstrated the ability to uncover vulnerabilities in exing software and encryption systems.
Why it’s an ‘ugly moment for IBM’
Analysts called it an “ugly moment for IBM”.Story continues below this ad
The company expects revenue to grow just 1% to $17.2 billion in the second quarter, its weakest growth in over a year.
“This is an ugly moment for IBM and software stocks… the big question will be how long the shift to infrastructure and cybersecurity lasts,” Reuters quoted Chris Beauchamp, chief market analyst at IG Group, as saying.
“A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”
Didn’t IBM course correct amid AI wave?Story continues below this ad
IBM has been working to reduce its reliance on its cyclical mainframe business.
IBM has increasingly focused on its high-margin Red Hat business, which allows companies to run applications across multiple cloud providers.
On Tuesday, IBM sought to reassure investors highlighting its investments in quantum computing. This includes more than $10 billion it has vowed to pour into building the first large-scale quantum computer 2029, amid a broader government push to reduce dependence on China in critical technology supply chains.
However, IBM’s investments in quantum computing and AI partnerships—including with OpenAI—remain at an early stage. Importantly, they are not yet large enough to materially offset weakness in its core software and infrastructure businesses.Story continues below this ad
What to watch out for?The company is expected to report second-quarter results on July 22.
IBM is expected to report quarterly revenue of about $17.2 billion, below analysts’ estimate of $17.86 billion, according to LSEG data cited Reuters.
(With inputs from agencies)
