Shares of IBM were down more than 23% when the market opened on Tuesday, raising fresh questions about whether companies are seeing enough near-term returns from artificial intelligence spending.
It is shaping up to be the worst day for IBM in decades, as its second-quarter earnings results showed profit and revenue missed analysts’ forecasts.
In a letter to investors on Tuesday, CEO Arvind Krishna said IBM’s Z mainframe business — its large enterprise computing systems boasting advanced AI capabilities — lagged behind the company’s outlook. The flagship product is the z17, described as a “transaction processing powerhouse.”
“Given this was the strongest start to a mainframe program in our history, we expected Infrastructure revenue to decline low-single digits for the year, beginning this quarter,” Krishna wrote. “What played out was worse than our expectations, driven by a shortfall in our Z performance and the associated software stack, primarily in Transaction Processing.”
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The IBM z17 is a mainframe that has been pitched as something that can instantly detect fraud when a customer swipes their credit card.
“Every time you swipe your credit card, check your bank balance, make a stock transaction or use an ATM, that transaction is likely running through an IBM Z. With AI embedded directly on the platform, IBM’s new z17… enables clients to detect fraud in real time without moving their data,” according to IBM’s website.
Krishna said IBM’s shortfall was largely caused by weakness in this software and infrastructure business as clients prioritized spending on hardware to insulate themselves from further price jumps.
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“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,” Krishna wrote.
“This dynamic impacted client buying patterns. While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization,” he continued.
IBM posted adjusted earnings of $2.93 per share on $17.2 billion in revenue, missing Wall Street estimates of $3.01 per share and $17.86 billion in revenue, according to CNBC.
Maria Bartiromo, host of FOX Business’ “Mornings with Maria,” pointed out on Tuesday that IBM’s slide is having a ripple effect on the tech sector.
“The biggest drag on the Dow Industrials this morning is IBM. This is the worst day so far that we’ve ever seen for IBM,” Bartiromo said. “This unexpected warning this morning sent a shock wave through the tech sector, causing software names to sell off; ServiceNow, Salesforce, Microsoft, all down.”
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