IBM loses $70B after CEO says firm 'faltered' on AI
What's the story
IBM saw its shares plummet by a staggering 25% on Tuesday, following the release of disappointing preliminary second-quarter results. This is the company's worst stock price crash in nearly six decades, Bloomberg reported. The tech giant lost between $67 billion and $70 billion in market capitalization in a single day during this historic stock crash.
Financial overview
Revenue growth and CEO's letter to investors
IBM's revenue for the three months ending June rose just 1% to $17.2 billion.
The company's infrastructure business, which includes its flagship mainframe line, saw a 7% decline in revenue.
While software revenue grew 5%, it still fell short of expectations.
"We faltered... and did not adapt and move quickly enough," said IBM CEO Arvind Krishna in a letter to investors.
Market shift
AI hardware demand shifts client spending
The global rush by tech companies to build artificial intelligence (AI) infrastructure has increased the demand for servers, memory chips, and storage.
This has driven up prices and created supply shortages across the industry.
Toward the end of June, many of IBM's big corporate customers rushed to buy hardware in anticipation of price hikes. This shopping spree diverted spending away from IBM's higher-margin mainframe computers and related software.
Security issues
Cybersecurity concerns distract clients
IBM also noted that cybersecurity concerns across the tech industry distracted clients during the quarter.
Businesses are prioritizing cybersecurity spending as AI makes cyberattacks more sophisticated.
These concerns were triggered by Anthropic's Mythos AI model, which can find weaknesses in computer networks that hackers can exploit.
In response, companies have focused on building their cyber defenses instead of spending on previously planned projects.
Sector concerns
Impact of AI on traditional software companies
The crash in IBM's share price has also raised questions about the impact of the AI revolution on traditional software companies, or Software as a Service (SaaS) firms.
These include Salesforce, Adobe, and Intuit. Their shares were trading lower on Tuesday after IBM's warning.
Earlier this year, analysts had predicted that the sector was doomed due to AI models providing everyday users with similar capabilities.