IBM shares fell as much as 25% in Tuesday trading after the company released preliminary second-quarter financial results on July 14 that missed Wall Street expectations. The drop was IBM’s largest single-day decline since 1968, and it quickly weighed on other software and information technology services stocks.
Microsoft, Workday, and Salesforce were among the names that moved lower after the report. IBM Chief Executive Arvind Krishna said customers are redirecting capital spending away from traditional software and services and into chips and servers needed for AI infrastructure, adding to market concern that the generative AI boom may be eating into demand for legacy software offerings.
Preliminary revenue came in below expectations
IBM reported preliminary second-quarter revenue of $17.2 billion, below the $17.9 billion expected by Wall Street analysts. In a letter to investors, Krishna said the company had not adjusted quickly enough internally, and several large deals failed to close within the expected timeframe. He identified that as the main reason for the revenue shortfall.
The market reaction was immediate. IBM stock plunged 25% intraday, its steepest one-day fall in nearly six decades.
Spending is shifting toward AI infrastructure
According to IBM management, the core reason behind the weaker revenue was a change in enterprise budget allocation. Customers are holding back purchases of traditional software and IT services, while prioritizing hardware needed to build AI infrastructure, including servers, storage equipment, and memory.
Adam Crisafulli, founder of Vital Knowledge, said the data hit the software and services segment and that investors are watching closely for the broader negative effects of this capital shift across the industry.
Software and IT services peers also came under pressure
IBM’s preliminary report dragged down the broader technology software and services group on Tuesday, July 15. Microsoft fell 1.55%, Workday dropped 3.49%, Salesforce lost 2.11%, and Autodesk declined 2.97%.
The move also fits a broader pattern in 2026. Software and IT services shares have remained under pressure as investors worry that wider AI adoption could reduce demand for traditional services. The iShares Expanded Tech-Software Sector ETF (IGV), which tracks the software segment, has fallen more than 12% this year. By contrast, the Philadelphia Semiconductor Index, which represents chips and hardware, has gained more than 78% over the same period, showing a sharp divergence in how the market is valuing hardware and software.