IBM shares plummeted more than 25% on Tuesday after the company issued a disappointing preliminary second-quarter profit warning, according to The Guardian.
The drop put the stock on track for a steeper single-day decline than during the 1987 "Black Monday" crash.
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Preliminary results showed quarterly revenue of $17.2 billion, a 1% year-over-year increase but below the $17.86 billion forecast.
Adjusted earnings per share were projected at $2.93, missing the Wall Street consensus of $3.02.
Company executives attributed the underperformance to a sudden shift in corporate customer spending priorities.
A global surge in AI development has driven demand for data center infrastructure, servers, memory chips, and storage systems.
Corporate clients rushed to secure hardware late in the quarter to outrun expected price hikes from supply shortages.
This emergency spending diverted budgets away from IBM's high-margin mainframe computers and enterprise software.
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IBM chief executive Arvind Krishna said in a letter to investors that "in the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases."
He added that "numerous large deals" failed to close as expected.
Broader Software Sector Hit
The selloff spread across the technology sector, with Microsoft, ServiceNow, Salesforce, and Intuit dropping between 3% and 5% in the same session.
The broader software market faces anxiety over long-term disruption from automation tools.
IG Group chief market analyst Chris Beauchamp called it "an ugly moment for IBM and software stocks."
He noted the key question is how long the shift to infrastructure and cybersecurity lasts.
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"A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks," Beauchamp said.
