The AI hardware investment boom hit IBM hard, and the stock plummeted 25% yesterday, setting a record
It suffered the worst sell-off in history on Tuesday, with the stock price plummeting 25.21% to close at $217.07, the largest single-day decline since "Black Monday" in 1987, and the market value evaporated by approximately $69 billion. The historic crash stemmed from IBM's preliminary second-quarter performance warning issued before the market opened. The company expects second-quarter revenue of approximately US$17.2 billion, a year-on-year increase of only 1%, which is far lower than analysts’ expectations of US$17.86 billion. Adjusted earnings per share are expected to be US$2.93, which is also lower than the market estimate of US$3.01. Looking at different businesses, software revenue increased by 5%, consulting business was basically flat, while infrastructure business sales unexpectedly fell by about 7%. IBM CEO Arvind Krishna admitted in a letter to investors that "we made mistakes this quarter." He explained in detail the reasons for the performance gap: In the last few weeks of June, customers shifted their quarterly capital expenditures to the purchase of servers, storage equipment and memory chips on a large scale to lock in supply-constrained infrastructure ahead of expected price increases. The shift severely cut customer spending on IBM software products. Krishna acknowledged that while the company anticipated some supply chain impacts, it "did not anticipate such a significant realignment of capital expenditures." In addition, Krishna admitted that the team failed to adapt quickly to market changes, and multiple large transactions failed to complete on schedule, which constituted a major part of the performance gap. He also mentioned that rapidly evolving cybersecurity concerns within the industry are also distracting customers and affecting purchasing decisions. This warning is seen as a clear signal of changes in the landscape of the technology industry - investment in AI infrastructure is having a significant "crowding out" effect on traditional software spending. Affected by this, ,ServiceNow, Salesforce Software stocks fell between 3% and 7% before the market opened. Analysts pointed out that a large amount of money is pouring into hardware companies, while there is not much left in other vertical fields, and hardware is "eating everyone's lunch."