Rapidly growing demand for artificial intelligence infrastructure is reducing software spending, IBM warned, according to preliminary second-quarter results, a sign that the AI boom is starting to hurt software companies
The company said it couldn’t keep up with the sudden shift in customer spending from software to software. Artificial Intelligence Infrastructure Such as servers, storage and memory. IBM’s warning shocked investors and raised new concerns that AI spending is changing the company’s investment direction, Reuters reported.
IBM shares fall
After the news was announced, IBM’s stock price plummeted about 22% in regular trading, and fell as much as 25% in pre-market trading. This may be the largest single-day decline in the company’s history. The sell-off spread throughout the software industry as investors worried that other companies might face the same problem.
The iShares Expanded Tech-Software Sector ETF, which tracks software companies, fell more than 4%, showing broad weakness across the industry, Bloomberg reported. Dow futures were also lower after a disappointing update from IBM.
Artificial Intelligence Spending Shift
IBM CEO Arvind Krishna said in a letter to investors that customers changed their spending plans in the last few weeks of June and decided to buy more artificial intelligence infrastructure instead of software. Customers have increased purchases of servers, storage systems and memory as they look to secure supply ahead of expected price increases.
Krishna said IBM expected some supply chain impact but didn’t expect customers to shift so much of their budget away from software. He acknowledged that IBM was “stumbling” because the company didn’t adjust quickly enough to changing spending patterns. Krishna also said that many large customer deals failed to close on time, hurting IBM’s financial results. He told investors these were “not excuses, but the reality behind the company’s weak quarter.”
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Reuters cited data from IBM and LSEG showing that IBM currently expects second-quarter revenue of about $17.2 billion, lower than Wall Street’s forecast of $17.86 billion. Bloomberg also reported that before IBM released preliminary figures, Wall Street expected revenue of about $17.9 billion in the quarter.
IBM is expected to post adjusted earnings of $2.93 per share, below analysts’ expectations of $3.02 per share, according to data cited by LSEG. The results fuel concerns that companies are cutting software budgets to increase construction costs artificial intelligence system. Investors are already concerned that artificial intelligence tools that automate routine tasks could reduce demand for software products and services, Reuters reported.
Software stocks take a hit
IBM’s update is one of the clearest signs yet that the AI investment boom is impacting software companies’ businesses. According to Reuters, Chris Beauchamp, chief market analyst at IG Group, called this “an ugly moment” for IBM and the software industry. The big question now, Beauchamp said, is how long companies will continue to shift funding toward AI infrastructure and cybersecurity rather than software. He warned that if this trend continues for more than a few months, investors may start to seriously question the software company’s future growth.
The weakness spread to several major technology companies in the wake of IBM’s announcement. Microsoft shares fell about 3%, and Salesforce shares fell more than 5% to 6%. Workday shares fell about 10% following a broad sell-off in software.
Oracle shares fell about 2%, and Autodesk shares fell about 5%. Shares of Intuit and ServiceNow also fell between 3% and 5%, Reuters reported. The pressure isn’t limited to software companies. IT services companies also saw a sharp decline. Accenture shares fell nearly 8%, Cognizant fell about 7%, and Infosys also fell more than 7%.
what happens next
According to Bloomberg, Vital Knowledge founder Adam Crisafulli said IBM’s performance could have a “devastating blow” to software and IT services stocks, as investors may worry that artificial intelligence spending is hurting the entire industry.
According to Bloomberg, software and IT services stocks There has been pressure throughout 2026 as investors worry that artificial intelligence could reduce demand for traditional software and consulting services. The iShares Software ETF is down more than 12% so far in 2026, while the Philadelphia Semiconductor Index is up more than 74%, suggesting investors are favoring chipmakers over software companies.
IBM is scheduled to release its full second-quarter earnings report on July 22, when investors will be looking for more details on customer spending and demand for artificial intelligence.
