IBM warned that the fast-growing demand for AI infrastructure is reducing spending on software, showing that the AI boom is starting to hurt software companies, according to IBM’s preliminary second-quarter results
The company said it could not keep up with the sudden shift in customer spending from software to AI infrastructure like servers, storage, and memory. IBM’s warning shocked investors and raised fresh concerns that AI spending is changing where companies are putting their money, according to Reuters.
IBM stock falls
After the announcement, IBM shares crashed about 22% in regular trading, while they fell as much as 25% in premarket trading, marking what could be the company’s biggest one-day fall ever. The selloff spread across the software industry as investors worried that other companies could face the same problem.
The iShares Expanded Tech-Software Sector ETF, which tracks software companies, dropped more than 4%, showing broad weakness across the sector, according to Bloomberg. Dow futures also moved lower after IBM’s disappointing update.
AI spending shift
IBM said customers changed their spending plans during the last few weeks of June and decided to buy more AI infrastructure instead of software, according to CEO Arvind Krishna’s letter to investors. Customers increased purchases of servers, storage systems, and memory because they wanted to secure supplies before expected price increases.
Krishna said IBM expected some supply-chain impact but did not expect customers to shift so much of their budgets away from software. He admitted that IBM had “faltered” because the company did not adjust quickly enough to the changing spending pattern. Krishna also said many large customer deals failed to close on time, which hurt IBM’s financial results. He told investors that these were “not excuses, but realities” behind the company’s weak quarter.
Also read: Goldman Sachs stock jumps after Q2 profit surges 78% on record Wall Street trading
IBM now expects second-quarter revenue of about $17.2 billion, below Wall Street’s estimate of $17.86 billion, according to IBM and LSEG data cited by Reuters. Bloomberg also reported that Wall Street had expected roughly $17.9 billion in quarterly revenue before IBM released its preliminary figures.
IBM expects adjusted earnings of $2.93 per share, below analysts’ estimate of $3.02 per share, according to LSEG data cited. The results have increased fears that companies are cutting software budgets to spend more on building AI systems. Investors have already been worried that AI tools capable of automating routine work could reduce demand for software products and services, according to Reuters.
Software stocks hit
IBM’s update became one of the clearest signs yet that the AI investment boom is affecting software companies’ business. Chris Beauchamp, Chief Market Analyst at IG Group, called it “an ugly moment” for IBM and the software industry, according to Reuters.Beauchamp said the biggest question now is how long companies will continue shifting money toward AI infrastructure and cybersecurity instead of software. He warned that if this trend continues for more than a few months, investors could start seriously questioning the future growth of software companies.
The weakness spread to several major technology companies after IBM’s announcement. Microsoft shares fell around 3%, while Salesforce dropped between 5% and more than 6%. Workday shares dropped about 10% after the broader software selloff.
Oracle shares fell about 2%, while Autodesk lost around 5%. Intuit and ServiceNow also declined between 3% and 5%, according to Reuters. The pressure was not limited to software companies. IT services firms also saw sharp declines. Accenture shares fell nearly 8%, Cognizant dropped about 7%, and Infosys also declined more than 7%.
What comes next
Adam Crisafulli, founder of Vital Knowledge, said IBM’s results could deal a “devastating blow” to software and IT services stocks because investors may fear that AI spending is hurting the whole industry, according to Bloomberg.
Bloomberg said software and IT services stocks have been under pressure throughout 2026 as investors worry that AI could reduce demand for traditional software and consulting services. The iShares software ETF has fallen more than 12% so far in 2026, while the Philadelphia Semiconductor Index has gained more than 74%, showing that investors are favoring chipmakers over software companies.
IBM is scheduled to release its full second-quarter earnings report on July 22, when investors will look for more details about customer spending and AI demand.
