KEY POINTS
- IBM stock has crashed almost 23%, falling from US$290 to around US$224. That is about US$55 billion gone, and its worst day in decades.
- The company warned that sales came in at US$17.2 billion, roughly US$660 million less than the market expected.
- The reason is odd. Customers took money out of their software budgets and spent it on memory chips and servers instead, rushing to buy before prices rise again.
- Software stocks fell everywhere. Workday dropped 10%, Salesforce lost 6%, and Microsoft and Oracle both slipped.
- Our view: this looks like an industry-wide spending problem, not just an IBM problem. IBM's full results on 22 July will tell us if it lasts.
IBM (NYSE:IBM) stock is crashing because of something almost nobody saw coming. The AI memory shortage has started eating software budgets. In the final weeks of June, IBM’s customers rushed to buy servers, storage, and memory chips before prices climbed again, and they paid for it by pausing the software and consulting orders IBM was counting on. The result was a US$660 million hole in the quarter and a stock down almost 23% before the market even opened. Krishna’s own verdict was blunt. His teams, he told investors, “faltered.”
Why Is IBM Stock Falling?
IBM took the unusual step of releasing rough numbers ahead of its scheduled results day. Companies rarely do that when the news is good.
Sales reached US$17.2 billion, up just 1% on last year. Adjusted profit of US$2.93 a share missed forecasts, and on a statutory basis profit actually fell 2%.
Here is the part that confuses people. Software still grew 5%, helped by Red Hat, and consulting was flat. Infrastructure sales fell 7%, dragged down by weak mainframe sales as the z17 launch cycle wound down. So how is this a software story?
Because growth is not the same as expectation. IBM was counting on several large enterprise deals closing in late June, and they did not get signed in time. Software grew, but nowhere near what management had promised. That gap is what broke the stock.
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Why Would a Memory Shortage Hurt a Software Company?
That may sound technical, but the idea is simple. A company has one technology budget. AI has made memory chips scarce and expensive, and buyers now believe prices are only going higher. So they are rushing to secure the physical gear first and pushing software purchases into next quarter.
For the past year, the AI boom lifted almost every technology stock. This is the first clear sign it has turned into a fight over the same pot of money. Someone has to lose, and this quarter it was IBM. Worryingly, management indicated this squeeze could weigh on results for the rest of the financial year. That is not a one-week hiccup.
Which Other Stocks Got Hit?
The market read this as a sector problem straight away. Workday dropped around 10%, Salesforce fell about 6%, Autodesk lost 5%, Microsoft slipped 3%, and Oracle fell 2%. The main software sector ETF dropped 4.5%. HSBC cut IBM to Reduce with a US$191 price target.
In our view, that reaction is rational. If businesses really are delaying software purchases, every enterprise software company carries the same risk into results season. None of them has warned yet.
What Does This Mean for ASX Tech Investors?
When US software sneezes, ASX software catches a cold. WiseTech Global (ASX:WTC) and TechnologyOne (ASX:TNE) sell into the same large corporate and government budgets that hardware just raided. Xero (ASX:XRO) serves small businesses rather than mainframe buyers, so the direct read-across is weaker, but it usually gets sold off alongside the sector anyway. A soft local session looks likely.
The fair counter-argument is that IBM has a long history of missing its own targets, and one bad quarter does not make a trend. It is possible this is simply a company that stumbled, dressed up as an industry shift.
That is why 22 July matters. If Krishna confirms the spending shift will last several quarters, the software sell-off has a lot further to run. If it proves to be a one-off, today’s panic will look like an overreaction, and the bargain will sit in the software stocks dragged down with IBM rather than in IBM itself.
IBM’s stock is crashing because the AI hardware boom is now being paid for out of the software budget.
