IBM warning sparks software selloff as customers shift spending to infrastructure

IBM jolted the software market on Tuesday after telling investors that customers were steering more of their technology budgets toward data-center infrastructure and away from software. The Armonk, New York company posted preliminary second-quarter revenue at about $17.2 billion, a 1% increase, but the mix of spending pointed to a harder fight for enterprise software vendors trying to capture money tied to the AI buildout.

Software revenue rose 5% and consulting revenue was flat, but infrastructure revenue fell 7%. Operating non-GAAP earnings per share were $2.93, up 5%, while GAAP diluted earnings per share were $2.27, down 2%. Pretax income margin was 14.4%, down 90 basis points. Year to date, IBM generated $7.8 billion in net cash from operating activities and $4.8 billion in free cash flow.

The company said the shortfall came from weaker-than-expected zSystems and mainframe performance, along with the associated software stack, especially transaction processing. IBM also said clients shifted late-June capital spending toward servers, storage and memory purchases so they could secure supply-constrained infrastructure ahead of expected price increases. Cybersecurity concerns also distracted customers, and numerous large deals failed to close on schedule.

That combination hit investor sentiment fast. Morningstar put IBM shares at $240.18 before the opening bell, down 17%, while Yahoo Finance put the premarket drop at about 22%, one of IBM’s worst single-day declines since 1961. The slide also dragged other software names lower and weighed on broader market futures.

IBM is scheduled to release its second-quarter 2026 earnings on July 22.