July 15, 2026, (Inside AI) — IBM shares plunged 25% on Tuesday, erasing nearly $70 billion in market value, after CEO Arvind Krishna admitted the company had “faltered” on artificial intelligence. The sell-off put IBM on course for the largest single-day loss in its 115-year history, surpassing even the 1987 “Black Monday” crash.
Krishna told investors that clients abruptly shifted spending toward servers, storage, and memory to secure supply-constrained infrastructure ahead of expected price increases. “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,” he wrote.
The warning crystallized a brutal reality: AI is reshaping enterprise budgets, and IBM’s legacy portfolio—mainframes, software, and consulting—is getting sidelined. Several large deals failed to close as expected, forcing the company to forecast second-quarter revenue of just $17.2 billion, below the $17.86 billion analysts expected.
Krishna’s candor rattled the broader software sector. Microsoft, ServiceNow, Salesforce, and Intuit all fell between 2% and 5%. The rout reflects a market reckoning: the AI boom is a zero-sum game for legacy vendors that failed to pivot fast enough.
“This is an ugly moment for IBM and software stocks... the big question will be how long the shift to infrastructure and cybersecurity lasts,” Chris Beauchamp, chief market analyst at IG Group, told Reuters.
“A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”
IBM’s mainframe business, which processes transactions for banks and airlines, is expected to report weaker performance. Krishna also noted that cybersecurity spending is surging as AI makes attacks more sophisticated, citing Anthropic’s advanced Mythos model, which can uncover software vulnerabilities.
The company has tried to reposition itself around high-margin assets like Red Hat and quantum computing. It vowed to invest over $10 billion to build the first large-scale quantum computer by 2029, and has AI partnerships, including with OpenAI. But these bets remain nascent and cannot offset the core business erosion.
Krishna acknowledged the misstep: “While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritisation.”
The sell-off underscores a broader industry tension. As SoftBank’s Masayoshi Son recently predicted AI will need $5 trillion per year by 2040, enterprises are funneling budgets into chips and infrastructure, starving traditional software and services. IBM’s plight shows that even a 115-year-old tech icon can be blindsided when it fails to adapt to tectonic shifts.
IBM will report full second-quarter results on July 22. Investors will watch for any signs that the infrastructure spending wave is temporary—or whether it marks a permanent realignment that leaves legacy software firms behind.
