Why IBM Stock Plummeted 25% On Tuesday

Shares of International Business Machines (NYSE: IBM) plummeted as much as 25% on Tuesday, marking the company’s worst single-day decline since the 1987 Black Monday crash, after IBM stunned Wall Street with a surprise pre-earnings warning.

IBM released preliminary second-quarter results a full week ahead of its scheduled earnings call, revealing revenue of $17.2 billion — up just 1% year-over-year and short of analyst expectations.

While non-GAAP earnings per share rose 5% to $2.93, GAAP EPS slipped 2% to $2.27 as gross margins contracted. The steepest damage came from IBM’s infrastructure segment, where revenue fell 7%, driven by weaker-than-expected demand for its flagship z17 mainframe.

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CEO Arvind Krishna acknowledged the company “faltered,” explaining that enterprise customers abruptly redirected capital spending in late June toward servers, storage, and memory to get ahead of anticipated AI-driven price increases — leaving software and consulting deals stalled. “

While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization,” Krishna wrote in a letter to investors.

The 25% plunge wiped out tens of billions of dollars in market value and dragged the Dow Jones Industrial Average lower, though the index was cushioned by a blowout earnings beat from Goldman Sachs the same day.

The selloff rippled across the broader tech sector. Software and consulting peers, including Accenture, ServiceNow, Salesforce, and Microsoft, traded lower amid fears of a wider enterprise budget rotation away from software toward physical AI infrastructure.

Meanwhile, hardware players such as Dell, Hewlett Packard Enterprise, and Micron rallied, seen as direct beneficiaries of the same capital-spending shift that hurt IBM.

Investors are now looking ahead to IBM’s official earnings call on July 22, when the company is expected to provide fuller details on whether the spending shift is temporary or signals a more lasting change in enterprise technology budgets.