Biggest crash in nearly 60 years: IBM shares tumble 25% as AI spending reshapes enterprise technology

IBM shares plunged 25 per cent on Tuesday, marking the company's biggest one-day stock decline in 58 years after it released disappointing preliminary second-quarter results. The sharp fall erased between $67 billion and $70 billion in market value, according to Bloomberg estimates. Investors reacted after IBM reported that revenue for the quarter ending in June rose only 1 per cent to $17.2 billion, missing market expectations.

Chief Executive Arvind Krishna admitted the company had failed to respond quickly enough to changing market conditions.

"We faltered... and did not adapt and move quickly enough," Krishna wrote in a letter to investors.

AI spending is changing customer priorities

IBM said one of the biggest reasons for the weak quarter was a shift in customer spending. As companies race to build AI infrastructure, demand for servers, memory chips and storage has surged. With supply remaining tight, many businesses accelerated purchases before expected price increases.

According to IBM, this meant customers redirected capital spending away from its high-margin mainframe systems and related software.

The company's infrastructure revenue fell 7 per cent, while software revenue grew 5 per cent, but still failed to meet analysts' expectations.

At the same time, IBM's server and storage business outside mainframes grew 37 per cent, reflecting strong demand for AI-related hardware.

Cybersecurity becomes a bigger priority

IBM also said cybersecurity spending increased significantly during the quarter. Businesses shifted budgets towards protecting their systems as more powerful AI models increased concerns about sophisticated cyberattacks.

The company pointed to growing industry focus on AI-powered security risks, prompting organisations to prioritise cyber defence over some planned technology projects. The trend also benefited cybersecurity companies. Shares of CrowdStrike rose around 12 per cent, while Okta and Netskope gained roughly 11 per cent following IBM's update.

What does this mean for software companies?

IBM's results have renewed debate over how artificial intelligence could reshape the future of traditional software businesses. Many investors are questioning whether conventional Software-as-a-Service (SaaS) companies can maintain growth as AI increasingly performs tasks that previously required specialised software. However, not every part of IBM struggled. Its Red Hat business reported 11 per cent revenue growth, showing continued demand for hybrid cloud and open-source software.

IBM also announced Lightwell, a $5 billion initiative backed by major financial institutions including Bank of America, JPMorganChase and Goldman Sachs to strengthen security across open-source software. While IBM's results disappointed investors, they also underline a broader shift across the technology industry. As companies invest heavily in AI infrastructure and cybersecurity, spending priorities are changing rapidly, creating both winners and losers across the enterprise software market.