Big Blue blues

Just a few weeks ago, IBM was basking in praise from President Trump. Today, it’s back in the spotlight, but for all the wrong reasons.

The software giant reported preliminary quarterly earnings that missed Wall Street’s expectations on both revenue and profit. The biggest disappointment came from its infrastructure business, where revenue fell 7% as demand for the company’s flagship z17 mainframes—designed to power enterprise computing—came in weaker than expected.

Another culprit was a shift in customer spending: IBM said clients redirected capital toward chips, servers, and memory, leaving less budget for its own products. “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,” CEO Arvind Krishna wrote in a letter to shareholders.

Shares fell 25.21% following the report, marking the stock’s worst trading day on record.

Memory mayhem

IBM’s results are the latest sign that the AI memory boom is reshaping spending across the tech industry.

Soaring memory prices first collided with tight supply, squeezing hardware makers like Dell and Apple, forcing them to either raise prices or absorb higher component costs. Now, it’s beginning to influence enterprise technology spending, with customers prioritizing memory and other critical infrastructure over software and systems purchases.

IBM’s software peers fell in tandem: Microsoft slipped 1.55%, Workday lost 3.49% and Salesforce declined 2.14%. IT services companies were hit as well, with Accenture and Cognizant Technology Solutions both moving lower.

The AI advantage

Another question hanging over IBM has been whether generative AI will eventually replace parts of its software business. But the company argues that instead, AI is becoming a tailwind: IBM has embedded AI capabilities across its software portfolio, and executives say growing AI adoption is actually increasing demand for IBM’s infrastructure software.

Analysts seem to be divided on where IBM goes from here. Citi stuck with its Buy rating, pointing to resilient Red Hat growth as a bright spot. Bank of America also reiterated its Buy rating, though it lowered its price target and said investors should expect IBM to trim its full-year outlook. HSBC was more pessimistic, downgrading the stock to Reduce and warning that rivals like IonQ could be gaining an edge in the fast-growing quantum computing market.

With Wall Street split, investors will be looking to IBM’s earnings call on July 22 for a clearer picture of where the business is headed next.—SY