IBM's stock crash explained: How the AI-infrastructure threat is looming over technology companies
As clients shift their capital expenditure to AI infrastructure, technology companies are facing financial stress
International Business Machines Corporation (IBM) experienced its most significant single-day stock decline in 40 years, dropping approximately 25 percent to $217 on July 14, following its pre-release of weaker-than-expected Q2 results showing $17.2 billion in revenue, falling short of the Wall Street estimate of $17.86 billion and displaying only 1 percent year-on-year growth. CEO Arvind Krishna attributed the "faltered" performance to missed deals and a significant client shift in capital expenditure away from software infrastructure towards securing AI hardware due to anticipated supply constraints and price increases, as well as a surge in cybersecurity spending, partly influenced by the threat posed by Anthropic's Mythos model. This shift negatively impacted competitors like Accenture and ServiceNow, while boosting cybersecurity firms such as Palo Alto, Fortinet, and CrowdStrike, though industry experts suggest IBM's situation may be a temporary setback, with the move towards AI infrastructure likely being a more enduring trend.
International Business Machines Corporation (IBM) experienced its most significant single-day stock decline in 40 years, dropping approximately 25 percent to $217 on July 14, following its pre-release of weaker-than-expected Q2 results showing $17.2 billion in revenue, falling short of the Wall Street estimate of $17.86 billion and displaying only 1 percent year-on-year growth. CEO Arvind Krishna attributed the "faltered" performance to missed deals and a significant client shift in capital expenditure away from software infrastructure towards securing AI hardware due to anticipated supply constraints and price increases, as well as a surge in cybersecurity spending, partly influenced by the threat posed by Anthropic's Mythos model. This shift negatively impacted competitors like Accenture and ServiceNow, while boosting cybersecurity firms such as Palo Alto, Fortinet, and CrowdStrike, though industry experts suggest IBM's situation may be a temporary setback, with the move towards AI infrastructure likely being a more enduring trend.
International Business Machines Corporation (IBM) experienced its most significant single-day stock decline in 40 years, dropping approximately 25 percent to $217 on July 14, following its pre-release of weaker-than-expected Q2 results showing $17.2 billion in revenue, falling short of the Wall Street estimate of $17.86 billion and displaying only 1 percent year-on-year growth. CEO Arvind Krishna attributed the "faltered" performance to missed deals and a significant client shift in capital expenditure away from software infrastructure towards securing AI hardware due to anticipated supply constraints and price increases, as well as a surge in cybersecurity spending, partly influenced by the threat posed by Anthropic's Mythos model. This shift negatively impacted competitors like Accenture and ServiceNow, while boosting cybersecurity firms such as Palo Alto, Fortinet, and CrowdStrike, though industry experts suggest IBM's situation may be a temporary setback, with the move towards AI infrastructure likely being a more enduring trend.
International Business Machines Corporation (IBM), a global technology company listed on the New York Stock Exchange (NYSE), witnessed its largest share sell-off in 40 years, with its share price dropping around 25 per cent in a single day.
Shares saw the steepest decline since the 1987 “Black Monday” crash, with the price dropping from $290 to a $217 on July 14. The stock crash followed IBM’s pre-release of its preliminary Q2 results, a common practice when the organisation expects financial distress. The reported results were $17.2 billion, different from the Wall Street estimate of $17.86 billion. While the figure was only modestly falling short of the prediction, missing estimates by around $660 million, the revenue showed only 1 per cent year-on-year growth, worrying investors.
The global Chief Executive Officer (CEO) of IBM, Arvind Krishna, in a letter to investors, said the company had “faltered” and missed out on some big deals. He also notes that clients shifted their budgets from software infrastructure, ahead of the expected AI hardware supply constraints and price increases.
“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,” he said.
Shares of Accenture, IBM's direct competitor, and ServiceNow, their partner, also dipped after the crash yesterday.
Krishna added that clients were also shifting capital expenditure to cybersecurity, specifically highlighting that the introduction of Anthropic’s Mythos model, which can hack into any system, contributed to this unexpected stress.
Big names in the cybersecurity segment benefited from the announcement. Share prices increased for Palo Alto, Fortinet, Check Point, CrowdStrike and Cloudflare, with the market treating this as evidence that security spend is definitely expected to increase because of Mythos.
IBM’s underestimation of the shift in capital expenditure towards supply-constrained AI-infrastructure and cybersecurity resulted in their newest mainframe, the z17, seeing a steeper decline than they expected.
However, according to industry experts, it is not necessary that IBM’s prospects are bleak. They observed that this could be a temporary blip, considering the company's conditions in this quarter. While cybersecurity prioritisation can clear up after a pause, the capital expenditure redirection towards AI-infrastructure is expected to be more long-term.