IBM told investors Tuesday that its second quarter came in light — eight days before it was scheduled to say anything at all. Preliminary revenue of $17.2 billion grew just 1% from a year ago, short of the roughly $17.9 billion analysts expected, and the company now sees operating EPS of about $2.93 against a consensus near $3.02. Shares cratered roughly 22% by late morning — pacing IBM’s worst session since October 19, 1987 — and wiped out nearly $60 billion in market value.
The reason is the story. CEO Arvind Krishna said that in the final weeks of June, clients shifted their quarterly capex toward “servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.” Translation: customers looked at soaring memory prices, concluded they would only go higher, and spent their budgets hoarding hardware — while the big software and consulting deals IBM expected to close slipped. The preliminary split: software up 5%, consulting roughly flat, infrastructure down 7%. Full results and updated guidance land July 22.
The market treated it as sector news, not company news — because it is. Workday fell nearly 10% at one point, ServiceNow about 8%, Salesforce 6%, and Microsoft nearly 2%, while sellers of the very hardware being hoarded rallied: Applied Materials and Teradyne both gained about 5%. On a morning when record bank earnings and a cool inflation print should have owned the tape, one pre-announcement from a 115-year-old company set the day’s real agenda.
Our take: The memory shortage just stopped being a chip story and became an income-statement story for software. A CIO’s quarterly budget is a fixed pie — when DRAM and storage prices are visibly about to jump, the rational move is to hoard hardware now and sign software later. “Later” is what Wall Street repriced today. Note what this breaks: the comfortable assumption that the AI buildout lifts all enterprise-tech boats. It doesn’t. The buildout is now eating the other boats’ budgets — and IBM isn’t the weakest name in software, just the first one to report a June quarter.
What to watch
- July 22: IBM’s full print and updated full-year guidance. The bull case is a timing blip — deals delayed, not dead. Krishna’s language on close rates will settle it.
- The confession cascade: ServiceNow, Microsoft, and Salesforce all report within weeks. Listen for the same late-June capex-shift language — one company is an excuse, three is a trend.
- Memory prices themselves: every further DRAM and NAND hike tightens the squeeze on Q3 software budgets. The hoarding Krishna described only makes the shortage worse.