Why IBM's Stock Just Had Its Worst Day Ever

Investors just handed IBM a sharp penalty for misreading the AI moment. Shares of the tech veteran plunged 25.2% on Tuesday after it warned that second-quarter results will miss Wall Street's forecasts, even though revenue and profit are still expected to rise modestly. CEO Arvind Krishna said big corporate customers are diverting budgets away from IBM's high-margin software and toward AI data-center hardware like servers, storage, and memory—moves IBM didn't see coming, leading to delayed deals, Fast Company reports.

The company "did not anticipate the magnitude of the capex reprioritization," Krishna said. "These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected." This was the largest one-day drop in the company's history, and it wiped around $69 billion off its market value, the Wall Street Journal reports.

The warning rattled other enterprise software names, with Microsoft, Adobe and Salesforce slipping even as the Nasdaq gained. "This is an ugly moment for IBM and software stocks," says Chris Beauchamp, chief market analyst at IG Group, per Reuters. "The big question will be how long the shift to infrastructure and cybersecurity lasts," he says. "A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks."