Software Giant Warns of Slower Growth as Customers Prioritize AI Hardware and Cybersecurity Investments
IBM (IBM) shares plunged after the company warned that a rapid shift in enterprise spending toward AI infrastructure is weighing on its software business, leading to weaker-than-expected second-quarter guidance. The stock fell sharply following the announcement, marking one of the company’s steepest single-day declines in decades.
IBM said many customers redirected their technology budgets in late June to secure AI-related infrastructure, including servers, storage, networking equipment, and memory, amid concerns over supply constraints and potential price increases. As a result, several large software deals failed to close during the quarter, significantly impacting revenue expectations.
The company now forecasts second-quarter revenue of approximately $17.2 billion and adjusted earnings per share of $2.93, both below Wall Street estimates. IBM also cited weakness in its mainframe business, which serves industries such as banking, government, and aviation with mission-critical computing systems.
Another factor influencing customer spending has been rising cybersecurity concerns. Advances in AI have prompted organizations to strengthen their security infrastructure, shifting additional budget away from traditional software purchases.
IBM continues to expand its software portfolio through businesses such as Red Hat in an effort to reduce its dependence on the cyclical mainframe segment. However, the latest results highlight how the AI investment boom is reshaping enterprise technology priorities, creating near-term challenges even for long-established industry leaders.
