IBM announced a preliminary revenue outlook for the second quarter that came in below analyst expectations, saying customers have shifted their spending toward artificial intelligence infrastructure—particularly servers, storage and memory. After the guidance was released, IBM's shares fell about 20% in premarket trading.
The figures
- IBM projected quarterly revenue of $17.2 billion in its preliminary guidance.
- Analyst consensus had been $17.86 billion.
- Adjusted earnings per share (EPS) were forecast at $2.93, versus the market expectation of $3.02.
These figures disappointed investors and triggered a sharp sell-off in the stock.
Why this is happening
IBM said the market shift reflects customers prioritizing solutions that support artificial intelligence workloads. As spending moves toward AI infrastructure, more traditional software purchases and other legacy spending categories are being deprioritized, altering the company’s revenue mix and near-term results.
CEO response and missed deals
Arvind Krishna, Chief Executive Officer of IBM, acknowledged in a letter to investors that the company did not move quickly enough to adapt to the changed market conditions during the quarter. As a result, several large deals were not closed on schedule.
Significance
The episode highlights an industry-wide reallocation of technology spending toward AI-related infrastructure, which can rapidly change competitive dynamics and revenue streams in the tech sector. In the short term, the weaker guidance and delayed contract signings produced a strong market reaction and significant share-price volatility.
This article is not investment advice. The information is based on reporting by Reuters.
