Why is IBM stock crashing today? Shares plunge over 25% - here’s what’s driving the fall

IBM stock price crash: IBM shares tumbled on Tuesday after the company indicated that its second-quarter revenue would likely fall short of Wall Street expectations. Based on preliminary results, IBM projected quarterly revenue of $17.2 billion, compared with analysts' estimate of $17.86 billion, according to LSEG data. The company's shares dropped 25.06% to $217.41.IBM also forecast adjusted earnings per share of $2.93 for the quarter, below the analysts' consensus estimate of $3.02.Why IBM share price is down today?Following the announcement, the stock plunged by as much as 23% in premarket trading. The weakness spread across the broader software sector, with shares of Microsoft, ServiceNow, Salesforce and Intuit declining between 3% and 5%. The iShares Expanded Tech-Software Sector ETF also fell more than 4%.The softer outlook comes as businesses increasingly direct their technology spending towards artificial intelligence infrastructure, including servers, storage and memory, resulting in lower expenditure on conventional software offerings.In a letter to investors, IBM Chief Executive Officer Arvind Krishna said customers redirected a significant portion of their capital expenditure towards servers, storage and memory during the final weeks of June, according to an ET report. According to him, companies accelerated purchases of infrastructure in anticipation of expected price increases.Krishna said IBM had anticipated some disruption to customer spending patterns because of supply-chain factors, but the shift proved far greater than the company had expected. He also acknowledged that IBM was slow to respond to the rapidly changing market environment, resulting in several large transactions failing to close within the quarter as anticipated.The company's update has intensified concerns across the software industry. Investors have already been wary that the growing adoption of artificial intelligence could weaken demand for certain software products by automating routine tasks. IBM's outlook has highlighted an additional challenge, indicating that the surge in AI-related spending is not benefiting every segment of the technology industry equally.While manufacturers of chips, servers and memory products have gained from increased investment in AI infrastructure, software companies are encountering tighter spending decisions from enterprise customers.IBM's warning indicates that many customers are giving priority to investments in hardware and data-centre infrastructure, while postponing or scaling back software purchases.Get the latest business news and top stories. Download the TOI App.Ready to Make a Smarter Property Decision? Build Your Legacy with TOI Homes.