IBM shares suffered their biggest one-day decline ever on Tuesday after CEO Arvind Krishna admitted the company’s latest quarter was much weaker than expected. He said IBM failed to respond fast enough to changing customer demand and rising costs linked to the global AI boom.
The sell-off wiped billions of dollars from the company’s value and marked the worst trading day in IBM’s 115-year history.
IBM stock falls more than 25%
IBM shares dropped 25.2% on Tuesday, closing at around $217. The fall was even steeper than the company’s loss during the famous Black Monday market crash on October 19, 1987, when IBM stock had fallen 23% along with the rest of the market.
Tuesday’s decline erased about $67 billion from IBM’s market value, leaving the company worth just under $205 billion.
The massive fall came after IBM CEO Arvind Krishna released a letter to investors, calling the company’s second-quarter performance “disappointing.”
“What played out was worse than our expectations. We did not adapt and move quickly enough,” Krishna wrote. He admitted IBM had failed to react fast enough as customers changed the way they were spending money.
AI boom changed customer spending
Krishna explained that many companies have shifted their technology budgets as AI data centres have created strong demand for servers, storage systems and memory chips.
As these products became harder to get, customers rushed to secure supplies before prices increased. Instead of spending on IBM’s software products, many customers decided to invest more in AI hardware.
IBM had expected some supply chain problems, but it did not expect customers to move such a large share of their budgets away from software.
Cybersecurity fears are hurting businesses
Krishna said another reason for weaker sales was the launch of Anthropic’s Mythos AI model.
According to him, several major business deals were delayed as customers tried to understand the possible impact of the new technology.
Anthropic has claimed that Mythos can help hackers identify cybersecurity weaknesses before companies themselves detect those security flaws. Krishna said those concerns made customers more cautious about signing new contracts.
IBM’s mainframe business also missed expectations
In his letter, Krishna reminded investors that IBM had expected a strong start to its new z17 mainframe system.
“When we discussed our expectations with you in April, we noted that we would be wrapping up the launch of z17 in the second quarter. Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter,” Krishna wrote.
However, he said the company’s performance turned out to be much weaker than expected. “What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing.”
He added that while IBM had planned for some disruption in the supply chain, it had underestimated how much customers would change their spending priorities.
The company was also affected by growing cybersecurity concerns across the industry.
“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
Despite the poor quarter, he said IBM still believes in its long-term strategy.
“While our second-quarter results are disappointing, our performance in many areas showed strength, reinforcing the conviction we have in our portfolio and strategy.”
Investors now waiting for earnings
IBM is scheduled to report its second-quarter earnings on July 22.
According to FactSet, Wall Street expects the company to report $17.2 billion in revenue and earnings of $2.93 per share. That would represent annual growth of about 1.3% in revenue and 3.5% in earnings per share.
AI competition has been pressuring IBM
IBM has been facing growing pressure as companies spend more on AI infrastructure and new artificial intelligence tools.
Earlier this year, in February, the company’s shares also suffered their biggest decline since 2000 after Anthropic introduced an AI tool that it said could simplify updates for COBOL, a programming language that has long been associated with IBM systems and is still widely used by businesses.
Several software firms around the world also saw their share prices fall as investors worried that rapidly improving AI tools could automate many of the services these companies currently provide.
Since late 2025, a global shortage of memory chips has pushed hardware prices higher.
Major chipmakers including Samsung, SK Hynix and Micron have shifted much of their production toward specialized chips used in AI data centres. Most of that production has already been sold under long-term contracts for 2026.
Micron CEO has warned that the shortage may continue for years.
He said he expects “tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints.”
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.
