IBM just had its worst market performing day in 50 years after preannouncing earnings. IBM’s expected EPS was $3.02 but the company expects $2.93, and it had revenue expectations of $17.86 billion as oppose to the $17.2 billion it recently adjusted.
IBM announced that its enterprise customers shifted away from the company’s software and z17 mainframes. Instead, customers focused spending on AI servers, storage, and memory amid concerns of a global memory shortage and expected price increases.
CEO Arvind Krishna said IBM only expected a single-digit decline in its z17 mainframe business, but the actual slowdown was much worse. IBM underestimated how much enterprise capital expenditures would shift.
IDC analyst Ashish Nadkarni believes that the market severely overreacted to the news, saying that the results don’t signal a collapse in IBM’s mainframe business.
Nadkarni did note, however, that the results show that IBM isn’t immune to companies relocating assets towards AI infrastructure.
Investors originally viewed IBM as a likely winner from the AI boom, but these earnings show that companies are spending more on infrastructure rather than IBM’s software and infrastructure offerings.
MarketWatch recently released a bullish sentiment on IBM with a $260 price target, but investors can expect lower adjustments on IBM soon.
IBM stock dropped over 25% in a single-day, could this be a calm for a change in leadership? The magnitude of this miss suggests that management failed to anticipate a significant shift in consumer spending, despite AI infrastructure demand being the dominant driver of technology.
The Magnificent 7 is projected to spend $700 billion on AI infrastructure in 2026 and IBM management hasn’t refused to make the necessary adjustments to properly benefit from these investments. It seems that leadership is braindead as to what’s going on in the tech world. Hyperscalers main focus is spend enormous amounts of money building out infrastructure, and IBM is concentrating on software. It shows just how blind the leadership of IBM actually is.
