IBM Says It Faltered as AI Spending Upends Enterprise Buying
IBM said customers redirected budgets towards scarce AI infrastructure, delaying major contracts and prompting Chief Executive Arvind Krishna to concede that the company moved too slowly.
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IBM Corp. has emerged as one of the clearest examples of how the artificial intelligence investment boom is upending enterprise technology spending.
The company said customers shifted budgets towards servers, storage and memory late in the second quarter, delaying large IBM contracts.
Chief Executive Arvind Krishna acknowledged that the company failed to respond quickly enough.
“These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna wrote in a letter accompanying IBM’s preliminary results. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”
IBM expects second-quarter revenue of $17.2 billion, up 1% from a year earlier but below the $17.86 billion analysts expected. Software revenue rose 5%, consulting was little changed and infrastructure revenue fell 7%. Adjusted earnings of $2.93 a share also missed expectations. IBM is due to report final results on July 22.
Krishna said the shift intensified in the final weeks of June as customers sought to secure supply-constrained equipment before expected price increases.
“In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases,” he wrote.
IBM had anticipated some supply-chain pressure but underestimated the scale of the budget reprioritization.
The warning shows that AI is not simply generating additional technology spending but is also redirecting existing budgets. As companies race to secure computing capacity, spending on software, consulting and other technology projects may become harder to predict.
IBM also said rapidly changing cybersecurity concerns distracted customers during the quarter. The company nevertheless pointed to stronger parts of its portfolio. Red Hat revenue grew 11%, while recently acquired HashiCorp and Confluent performed well. Consulting continued to benefit from demand for generative AI services.
“While performance in the quarter was below our expectations, we have conviction in the strength of our portfolio and the strategic transformation of our business,” Krishna wrote.
IBM shares fell about 25% on July 14, their worst single-day performance on record, wiping roughly $69 billion from the company’s market value.
Microsoft, Salesforce and other software stocks also declined as investors reassessed the effect of AI infrastructure spending on the broader enterprise technology market.
