IBM shares plunge 25 per cent, wiping out nearly USD 70 billion in market value

IBM (International Business Machines) shares plunged 25 per cent on Tuesday (July 14) after the US technology company reported weaker-than-expected preliminary second-quarter results.

According to a Bloomberg report, it was the company's biggest single-day stock market fall in the last 58 years.

IBM suffers historic fall

The sharp decline erased an estimated USD 67 billion to USD 70 billion in market value in a single session. IBM, which was founded in 1911, said revenue for the quarter ending in June rose just one per cent to USD 17.2 billion.

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"We faltered... and did not adapt and move quickly enough," IBM CEO Arvind Krishna said in a letter to investors. The company said revenue from its infrastructure business, including its flagship mainframe computers, fell seven per cent. Software revenue increased five per cent but still remained below expectations.

Revenue misses estimates

IBM said the broader technology industry has seen a surge in demand for servers, storage systems and memory chips as companies continue investing in artificial intelligence infrastructure. According to the company, higher demand has also led to supply shortages and rising prices.

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Towards the end of June, IBM said many of its large corporate customers rushed to buy hardware before expected price increases. The company said this shift in spending reduced purchases of its higher-margin mainframe computers and related software.

AI demand shifts spending

"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... While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation," Krishna said.

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IBM further stated that cybersecurity concerns affected customer spending during the quarter. According to Krishna, businesses were giving greater priority to cybersecurity as AI made cyberattacks more advanced.

The company linked this to Anthropic's Mythos AI model, which has raised concerns over its reported ability to identify weaknesses in computer networks.

Cybersecurity firms gain

The development also reportedly boosted cybersecurity stocks, with CrowdStrike rising 12 per cent, while Okta and Netskope gained around 11 per cent each.

However, IBM said its Red Hat unit posted 11 per cent revenue growth, while its non-mainframe server and storage business grew 37 per cent. The company also announced Lightwell, a USD 5 billion initiative to address vulnerabilities in open-source software, backed by Bank of America, JPMorganChase and Goldman Sachs.