IBM has warned that a surge in spending on artificial intelligence infrastructure is weighing on its core business, in one of the clearest signs yet of how the AI boom is reshaping the technology sector.
The company said it had "faltered" in adapting to a rapid shift in corporate spending away from software and towards data centre infrastructure, resulting in a significant blow to its second-quarter earnings expectations.
Investors reacted sharply to the warning, sending IBM shares down 25% on Tuesday. The decline put the stock on course for a steeper one-day fall than the drop it suffered during the 1987 Black Monday market crash.
IBM Chief Executive Arvind Krishna said customers had increasingly redirected budgets towards securing scarce AI-related infrastructure.
"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," 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 reprioritization," he added, noting that "numerous large deals" failed to close as expected.
The weakness was concentrated in IBM's mainframe business, which provides large-scale computing systems used by industries including banking and aviation.
The company also said customers were increasing spending on cybersecurity amid growing concerns about AI-driven cyber threats.
IBM forecast second-quarter revenue of $17.2 billion, representing growth of just 1% and falling short of analysts' expectations of $17.86 billion.
The company also projected adjusted earnings per share of $2.93, below forecasts of $3.02.
The warning has intensified concerns about the broader software sector, which is already facing disruption from AI tools capable of writing code and automating tasks traditionally performed by software developers.
"This is an ugly moment for IBM and software stocks," said IG Group market analyst Chris Beauchamp.
"The big question will be how long the shift to infrastructure and cybersecurity lasts. A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks."
In an effort to reassure investors, IBM highlighted its investments in quantum computing, including plans to spend more than $10 billion building the world's first large-scale quantum computer by 2029.
The company is also expanding its artificial intelligence partnerships, including collaborations with OpenAI.
However, analysts noted that IBM's quantum computing and AI initiatives remain at a relatively early stage and are not yet large enough to offset weakness in its core software and infrastructure businesses.
IBM is scheduled to report its second-quarter financial results on 22 July.
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IBM has warned that a surge in spending on artificial intelligence infrastructure is weighing on its core business, in one of the clearest signs yet o...
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The United States carried out a third consecutive night of airstrikes against Iran, targeting military capabilities around the Strait of Hormuz as Donald Trump announced the reinstatement of a blockade on Iranian shipping and proposed a 20% fee on cargo passing through the strategic waterway.
President Ilham Aliyev has approved an agreement between the governments of Azerbaijan and Georgia on the supply of natural gas to Georgia, marking another step in energy cooperation between the two neighbouring countries.
The United States has announced a campaign to weaken the International Criminal Court (ICC), describing the tribunal as a threat to American sovereignty and signalling that further sanctions, visa restrictions and diplomatic pressure on allies could follow.
TikTok moderates content in more than 70 languages, including Azerbaijani, using a combination of artificial intelligence and human reviewers, a company representative has said.
The United States carried out a third consecutive night of airstrikes against Iran, targeting military capabilities around the Strait of Hormuz as Donald Trump announced the reinstatement of a blockade on Iranian shipping and proposed a 20% fee on cargo passing through the strategic waterway.
President Ilham Aliyev is holding his annual question-and-answer session with international journalists at the 4th Shusha Global Media Forum in Azerbaijan.
The United States and Iran have significantly escalated their conflict, exchanging heavy missile and drone strikes across the Gulf region. Iran claims it has once again closed the Strait of Hormuz, a vital global shipping route.
Start your day informed with AnewZ Morning Brief. Here are the top news stories for the 13th of July, covering the latest developments you need to know.
An overnight fire at a popular bar in Bangkok has killed at least 30 people and injured 70 others, making it one of the deadliest pub disasters in the Thai capital in recent years. Authorities say the venue quickly filled with thick smoke, trapping patrons inside.
TikTok moderates content in more than 70 languages, including Azerbaijani, using a combination of artificial intelligence and human reviewers, a company representative has said.
China has successfully tested an experimental rocket recovery system using a net attached to an offshore platform, marking a major step in its efforts to develop reusable rockets and compete with U.S. space technology.
OpenAI on Thursday unveiled ChatGPT Work, a new artificial intelligence agent designed to help professionals create documents, presentations and websites using advanced coding capabilities without requiring programming expertise.
A Swiss humanoid robot capable of displaying the faces of world leaders and business executives was showcased at the AI for Good Global Summit in Geneva on Tuesday (7 July). Developers said the technology could make human-machine interactions more natural and expressive.
United Nations Secretary-General Antonio Guterres has warned that artificial intelligence is developing faster than governments and regulators can manage, calling for globally coordinated rules to reduce risks and ensure the technology is used safely, particularly by children.
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