Breaking News
IBM said enterprise customers are increasingly diverting technology budgets from software to AI infrastructure, warning that the shift will weigh on its second-quarter earnings and offering one of the clearest signs yet that the AI buildout is reshaping enterprise IT spending priorities.
The company said clients redirected capital expenditure toward servers, storage, and memory systems to secure supply-constrained AI infrastructure, causing several large software and systems deals to slip from the quarter.
"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," CEO Arvind Krishna said in a letter to investors.
"While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said, adding that "numerous large deals" failed to close as expected.
The warning sent IBM shares down 25% in Tuesday trading, putting the stock on course for one of its steepest single-day declines and weighing on other enterprise software companies as investors reassessed the impact of AI infrastructure spending on the broader software market.
The results suggest enterprises are prioritizing investments in the hardware needed to support AI workloads—including servers, accelerators, storage systems and networking equipment—even if that means delaying purchases of software and other enterprise technology.
IBM said the slowdown was most pronounced in its mainframe business, which supplies high-performance computing systems used by industries such as banking, airlines and government to process large volumes of mission-critical transactions.
The company also said customers are increasing spending on cybersecurity as advances in AI make cyberattacks more sophisticated. IBM cited Anthropic's Mythos model, which it said has heightened concerns among enterprises by demonstrating the ability to identify weaknesses in software and encryption systems, prompting organizations to strengthen security investments.
IBM now expects second-quarter revenue of about $17.2 billion, up roughly 1% from a year earlier but below analysts' consensus estimate of $17.86 billion, according to LSEG. It forecast adjusted earnings per share of $2.93, also below Wall Street expectations of $3.02.
The company has been working to reduce its reliance on the cyclical mainframe business by expanding higher-margin software offerings, including Red Hat, which provides hybrid cloud technologies that help enterprises deploy applications across multiple cloud environments.
The outlook highlights a broader trend emerging across enterprise IT: as organizations race to build AI infrastructure amid ongoing supply constraints, spending on traditional software projects is increasingly competing with investments in the compute, storage and networking capacity needed to support generative AI workloads.
The company said clients redirected capital expenditure toward servers, storage, and memory systems to secure supply-constrained AI infrastructure, causing several large software and systems deals to slip from the quarter.
"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," CEO Arvind Krishna said in a letter to investors.
"While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said, adding that "numerous large deals" failed to close as expected.
The warning sent IBM shares down 25% in Tuesday trading, putting the stock on course for one of its steepest single-day declines and weighing on other enterprise software companies as investors reassessed the impact of AI infrastructure spending on the broader software market.
The results suggest enterprises are prioritizing investments in the hardware needed to support AI workloads—including servers, accelerators, storage systems and networking equipment—even if that means delaying purchases of software and other enterprise technology.
IBM said the slowdown was most pronounced in its mainframe business, which supplies high-performance computing systems used by industries such as banking, airlines and government to process large volumes of mission-critical transactions.
The company also said customers are increasing spending on cybersecurity as advances in AI make cyberattacks more sophisticated. IBM cited Anthropic's Mythos model, which it said has heightened concerns among enterprises by demonstrating the ability to identify weaknesses in software and encryption systems, prompting organizations to strengthen security investments.
IBM now expects second-quarter revenue of about $17.2 billion, up roughly 1% from a year earlier but below analysts' consensus estimate of $17.86 billion, according to LSEG. It forecast adjusted earnings per share of $2.93, also below Wall Street expectations of $3.02.
The company has been working to reduce its reliance on the cyclical mainframe business by expanding higher-margin software offerings, including Red Hat, which provides hybrid cloud technologies that help enterprises deploy applications across multiple cloud environments.
The outlook highlights a broader trend emerging across enterprise IT: as organizations race to build AI infrastructure amid ongoing supply constraints, spending on traditional software projects is increasingly competing with investments in the compute, storage and networking capacity needed to support generative AI workloads.
See What’s Next in Tech With the Fast Forward Newsletter
START - UP
Tweets From @varindiamag
Nothing to see here - yet
When they Tweet, their Tweets will show up here.
