IBM Stock Drops 23 Percent After Earnings Warning, Blames AI-Driven Memory Shortage

International Business Machines shares fell as much as 23 percent on Tuesday after the company issued an unusual preliminary warning ahead of its second-quarter earnings. It was IBM's worst single-day trading session since October 1987, when the stock lost 23.7 percent on so-called Black Monday.

A Warning Instead of a Report

IBM rarely releases preliminary figures ahead of its formal quarterly results, so the mere appearance of the statement unsettled investors even before the market opened. In a letter to investors, Arvind Krishna wrote that in the final weeks of June the company saw a sharp shift in how corporate clients were spending their budgets.

In the final weeks of June, we saw customers shift their quarterly capital spending toward servers, storage and memory purchases to secure access to supply-constrained infrastructure before prices rose even further - Arvind Krishna, CEO of IBM

Memory Costlier Than Software

The core of the problem lies in the market for RAM and memory chips, which have been getting more expensive for months amid demand driven by the buildout of AI data centers. Companies work with a single, limited technology budget, and as memory prices climb week over week, IBM's customers chose to secure access to hardware rather than go through with previously planned purchases of software licenses and services.

Krishna admitted that the scale of the shift caught even the company itself by surprise. IBM's management had expected some supply-chain disruption, but did not anticipate that the reshuffling of customers' capital spending would reach such a scale.

While our forecasts accounted for some supply-chain impact, we did not anticipate the scale of this capital spending reshuffling - Arvind Krishna, CEO of IBM

Mainframe and Scattered Customers

A second factor weighing on results was weaker sales in the Z mainframe segment and its accompanying transaction-processing software. On top of that, IBM said, some large deals stalled because customers were busy reviewing reports about Mythos, an Anthropic tool that flags security vulnerabilities in corporate systems, rather than finalizing contracts with IBM before the end of the quarter.

Krishna openly admitted to execution mistakes. According to him, IBM's teams did not respond quickly enough to changing market conditions, causing some large contracts to miss their planned closing date.

Analyst and Market Reaction

Analysts took the results as confirmation of fears that some traditional tech giants may be losing out to the AI boom rather than benefiting from it. Fatima Boolani of Citi warned that the disappointing figures would reinforce the narrative of IBM as a company losing the AI race. Neil Churchill of HSBC downgraded the stock to Reduce, suggesting that the market has put more faith in a polished, synthetic image of IBM built around AI than in the company's actual financial results.

The selloff was not limited to IBM alone. Declines also hit other enterprise software companies, including Workday, Salesforce, Autodesk, Microsoft and Oracle, suggesting that pressure on software budgets may be a broader phenomenon rather than a problem specific to a single company.

What's Next for the Rest of the Year

IBM's management warned that the reshuffling of customer spending could weigh on the company's results not only in the second quarter but in subsequent quarters of this fiscal year as well. That collides with the narrative of a months-long rebound in IBM's stock, which had climbed from around $215 in May to nearly $300, driven by investor hopes that the company would profit from the AI boom.

For Polish investors and companies using IBM's services, the situation signals that AI-related memory infrastructure costs are starting to genuinely shift purchasing priorities at large organizations, at the expense of spending on software and consulting services. It is further evidence, following earlier reports of steep price increases for RAM and SSD memory, that the effects of the AI investment boom are already spreading into the financial results of traditional tech companies, not just chipmakers.

Sources: IBM stock craters 23% after issuing second-quarter earnings warning (cnbc.com), IBM stock crashes after major warning (finance.yahoo.com), IBM Stock Crash: AI Memory Shortage Drains Software Budget (stocksdownunder.com), Worse than the Dot-com bubble: IBM stock crash (xtb.com)