IBM fell tragically by more than 20%, comparable to the 1987 stock market crash. What happened?
After the U.S. stock market opened on Tuesday night, the veteran technology company IBM jumped more than 20% and opened lower, which also brought down the software sector. (IBM daily chart, source: TradingView) As of press time, IBM still fell by more than 24%. For comparison, the company's closing price on October 19, 1987 ("Black Monday") was 23.7%. The reason for IBM's plunge can be explained in one sentence: The market has been worried about "AI's impact on the software and IT services sector" and it has finally come true.
After the U.S. stock market opened on Tuesday night, the veteran technology company IBM jumped more than 20% and opened lower, which also brought down the software sector. (IBM daily chart, source: TradingView) As of press time, IBM's decline is still more than 24%. For comparison, the company's closing price on October 19, 1987 ("Black Monday") was 23.7%. The reason for IBM's plunge can be explained in one sentence: The market has been worried about "AI's impact on the software and IT services sector" and it has finally come true. In a "letter to investors" from Arvind Krishna, the company's chairman and CEO, the head of IBM announced that the company's second-quarter performance fell short of expectations. Among them, preliminary estimated revenue is US$17.2 billion, lower than Wall Street's expected US$17.9 billion; adjusted earnings per share is US$2.93, also lower than market expectations of US$3.01; pre-tax profit margin is expected to shrink 90 basis points to 14.4%. IBM is scheduled to announce its financial results on July 22, so disclosing poor results in advance is completely beyond market expectations. Krishna said IBM's performance gap was mainly caused by weakness in the company's software and infrastructure businesses. As for the company's predicament, Krishna explained that the final weeks of June saw customers shift quarterly capital expenditures toward server, storage and memory purchases to lock in supply-constrained infrastructure ahead of expected price increases. By contrast, there is less money available to buy IBM's new z17 mainframe, a machine the company had hoped would attract enterprise customers in the AI era. Although IBM had foreseen this situation, it was shocked by the extent to which customers had drastically adjusted their purchasing behavior. "While we accounted for some supply chain-related impacts in our expectations, we did not anticipate the scale of the capital expenditure reordering," Krishna wrote. IBM also said customers were also distracted by the cybersecurity threats/capabilities of Anthropic's latest flagship model, Mythos. Anthropic claims that this model is extremely capable in the field of network security and can quickly and massively discover security vulnerabilities in enterprise systems. It also put a pause on several big deals that IBM expected to close before the end of the quarter. Affected by IBM's plunge, the software sector was dragged down. As of press time, Microsoft fell nearly 2%, Workday fell 6.3%, Salesforce fell nearly 3%, and SAP SE shares fell 3.4%. IT services companies also weakened simultaneously, with Accenture falling more than 3% and Kochi Technology falling more than 2%. (