Enterprise AI budgets are shifting to hardware, forcing out traditional software demand. IBM's stock price plummeted 25% in a single day, setting a record
The recently released second-quarter performance warning triggered violent fluctuations in the financial market. Affected by the large-scale shift of corporate customers' IT budgets to artificial intelligence (AI) basic hardware, which resulted in the postponement of traditional software and host project contracts, IBM's stock price plummeted by more than 25% in a single day, setting the company's largest single-day decline on record, and its market value evaporated by approximately US$69 billion. The preliminary financial report released by IBM shows that the company expects second-quarter revenue to be approximately US$17.2 billion, a slight increase of only 1% year-on-year, lower than the market consensus of US$17.86 billion; operating earnings per share are expected to be US$2.93, which is also lower than expected. After the results were announced, market risk aversion spread rapidly, causing IBM's stock price to suffer a historic plunge. Analysts pointed out that enterprises' adjustment of budget structure during the AI technology transformation period was the core inducement for IBM's performance to stall. Amid expectations of skyrocketing demand for AI computing power and tight supply chains, a large number of corporate customers prioritized allocating funds to the purchase of hardware such as servers, storage devices and memory chips at the end of the second quarter, directly squeezing spending on IBM's traditional software, consulting services and host systems, resulting in the failure of many large commercial transactions to perform on schedule. In response to the stalled performance, IBM CEO Arvind Krishna clearly admitted in a letter to investors that the company had "made mistakes" in responding to market changes and failed to quickly adapt to dynamic adjustments in customer budgets, resulting in the delay of the completion of many major projects. Krishna also emphasized that despite short-term execution challenges, core software businesses such as Red Hat and distributed infrastructure demand continue to grow, and the company will evaluate its full-year performance expectations in the upcoming formal financial report. Market research institutions believe that IBM’s performance warning this time reveals the substitution effect of current enterprise-level AI investments on the traditional IT industry chain. As companies accelerate the deployment of AI infrastructure, the crowding out effect of computing hardware procurement on software and consulting budgets may continue in the short term. This structural change has also cast a shadow on the transformation prospects of traditional software and technology service companies.