IBM announced that its Q2 revenue is likely to miss analysts’ consensus, sending the stock tumbling 25.06% to $217.41. The weakness rippled through the broader software sector, pulling down Microsoft, ServiceNow, Salesforce and Intuit by 3‑5% and dragging the iShares Expanded Tech‑Software Sector ETF down more than 4%.

Background and Market Reaction

The company forecast adjusted earnings per share of $2.93, below the $3.02 consensus. CEO Arvind Krishna explained that in the final weeks of June, many enterprise customers shifted a significant portion of their capital expenditure toward AI‑driven infrastructure—servers, storage and memory—at the expense of conventional software licensing.

Why AI Infrastructure Is Driving the Shift

Globally, the rapid adoption of generative‑AI models has sparked a surge in data‑center investments. Firms are accelerating hardware purchases in anticipation of price hikes, while deferring or scaling back software contracts. IBM admitted that the magnitude of this spend‑reallocation exceeded its supply‑chain‑adjusted expectations, causing several large deals to miss their quarterly close targets.

Implications for the Tech Landscape

Analysts warn that AI‑enabled automation could erode demand for legacy software products. Chip, server and memory manufacturers are benefitting from the infrastructure boom, whereas pure‑play software vendors face tighter enterprise budgets. IBM’s warning signals that many customers are prioritising hardware and data‑center upgrades, postponing software upgrades or new licences.

Looking Ahead

The episode underscores a structural shift in technology spending: capital is flowing toward AI‑centric hardware, while software firms must adapt their offerings or risk marginalisation. Investors should monitor how quickly the sector rebalances and whether companies like IBM can pivot to capture the growing AI‑infrastructure spend.