IBM shares crash 25% as Q2 2026 warning hits software sector

What IBM told investors on July 14

IBM said it had “faltered” in keeping pace with a sudden shift in enterprise technology spending from software toward data-center infrastructure. The company warned it would take a big earnings hit in the second quarter, calling out changes in customer purchasing patterns late in June. The update is one of the clearest signals so far that the AI buildout is reshaping where corporate IT budgets go, at least in the near term. IBM is scheduled to report full second-quarter results on July 22.

The spending shift: software deferred, infrastructure pulled forward

In a letter to investors, CEO Arvind Krishna said that in the last few weeks of June, clients shifted quarterly capex toward servers, storage, and memory. The aim, he said, was to secure supply-constrained infrastructure ahead of expected price increases. IBM also said it had anticipated some disruption from supply-chain factors, but the scale of the shift was larger than expected. The company said several large deals it expected to close during the quarter were delayed, contributing to the miss.

Preliminary Q2 numbers came in below consensus

Based on preliminary results, IBM projected Q2 revenue of $17.2 billion. That compared with an analysts’ estimate of $17.86 billion (LSEG data cited in the report). IBM also forecast adjusted earnings per share of $1.93, below the consensus estimate of $1.02 (another reference in the text puts expectations at around $1.01). The company’s update was released ahead of the planned earnings date, adding to investor focus on the magnitude of the shortfall.

Where IBM saw the weakness

IBM said the weakness was largely in its mainframe business, which sells high-powered computers and related software used to process millions of daily transactions across industries such as banking and airlines. Separately, the text also notes that IBM’s infrastructure division saw a 7% revenue decline during the quarter. The combination matters because mainframe and transaction processing are central to IBM’s profit model, and infrastructure is tied to broader enterprise modernization cycles.

Cybersecurity prioritisation also featured in the update

IBM noted that businesses were prioritising cybersecurity spending given recent breakthroughs in AI hacking abilities. In the context of the quarter, this was presented as another factor influencing how clients allocated budgets and attention. The company also indicated that deal timing was affected, with large transactions not closing when expected.

Stock reaction: one of the steepest drops in decades

IBM shares fell sharply after the preliminary disclosure. The report cited a 25.06% drop to $117.41 in Tuesday’s move, and also noted the stock was down 26.53% to $118.20 in afternoon trade in another update. In premarket trading, the stock was reported down as much as 23%.

The Reuters report described the decline as putting the stock on track for a steeper single-day fall than its drop during the 1987 “Black Monday” crash, if losses held. The selloff also erased a large chunk of market value, with the coverage citing nearly $15 billion wiped out.

Spillover: software and IT services names under pressure

The warning triggered a broader selloff across software and IT services stocks even as the Nasdaq Composite traded about 1% higher, suggesting investors treated the news as sector-specific rather than a broad risk-off move. The text references weakness in several global software names in premarket trade, including Oracle, Adobe, Accenture, and Cognizant, and also notes pressure across others such as Salesforce, Intuit, and ServiceNow. The core concern flagged in the report is that customers are front-loading AI infrastructure spending while postponing software purchases and large enterprise contracts.

Key figures at a glance

Market impact: what the warning implies for enterprise spending

The update highlights a near-term reallocation rather than a blanket pullback in IT spend. The reports describe enterprises racing to secure supply-constrained servers, chips, and networking gear, which is diverting budget from other technologies. For software vendors, the concern is timing and prioritisation: large contracts and renewals may face tighter scrutiny when budgets are being redirected to hardware and data-center infrastructure needed to run AI workloads.

For IBM, the impact is visible in the preliminary revenue and EPS guidance and in the focus on weaker performance in mainframes and infrastructure. The market reaction indicates investors are weighing not only a single-quarter miss, but also execution risk in adjusting sales motion and deal closures when customer priorities shift quickly.

Analysis: AI infrastructure boom, software budget squeeze

Across the text, the common thread is that the AI buildout is creating winners in chips, servers, and memory, while forcing trade-offs for software purchases in the same budget cycle. IBM’s admission that it “faltered” puts a spotlight on how quickly large enterprises can re-rank priorities when shortages and price expectations emerge in critical infrastructure components.

The comments also reinforce that AI’s impact on the sector is not limited to new tools that automate coding and tasks. The physical layer of AI deployment, including servers, storage, and memory, can pull forward spending and reshape quarterly outcomes for companies positioned more heavily toward software and traditional enterprise contracts.

Conclusion: next checkpoint is IBM’s July 22 earnings

IBM’s preliminary update sets expectations for a softer Q2 than Wall Street had modeled, with revenue projected at $17.2 billion and adjusted EPS at $1.93. The company tied the miss to late-quarter budget shifts toward AI infrastructure, delayed deals, and weakness in core areas including mainframes. Investors will look to July 22 for fuller segment detail and management’s updated view on whether delayed deals return in subsequent quarters and how spending priorities are evolving.