3 min read
IBM had a genuinely historic day on July 14, and not the good kind. The 113-year-old company’s shares cratered as much as 25% after it pre-announced Q2 results that missed Wall Street’s expectations, marking one of its worst single-day drops on record, worse than almost anything since the late 1960s. And it did not fall alone: the shock dragged down ServiceNow, Workday and Accenture right along with it, wiping billions off the wider enterprise-software complex in an afternoon.
The numbers
The specifics: preliminary revenue of $17.2 billion came in under the $17.86 billion analysts expected, and adjusted earnings of $2.93 per share fell short too, according to reporting on the earnings warning. Under the hood it was uneven rather than uniformly grim: software actually grew about 5% and consulting held roughly flat, but infrastructure slid 7%. HSBC was unimpressed enough to cut its rating on IBM to “Reduce” with a price target around $191, warning of further downside.
Why it actually happened
This is where it gets interesting, because the reason is not “IBM is a dinosaur.” CEO Arvind Krishna pinned the miss on clients redirecting their capital spending toward hardware, servers, storage and memory, and away from the software and consulting budgets that are IBM’s bread and butter. Read that again, because it is the whole story of this market in one sentence: enterprises are hoovering up every spare dollar and pouring it into AI infrastructure, and the boring, profitable, keep-the-lights-on software spending is getting starved to pay for it. The same memory and storage crunch that just made your next laptop more expensive is quietly reshaping which tech companies get rewarded and which get punished.
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The company that bet on the other horse
There is a real poignancy here, and it is worth being fair to IBM about it. Having been largely lapped in the frantic AI-model race, IBM went all-in on the next frontier instead: quantum computing, where it is genuinely one of the world’s leaders, and where it was one of the beneficiaries of the recent roughly $2 billion US government package of equity stakes across the quantum sector. That is a serious, defensible, long-horizon bet. The problem is that “long-horizon” and “a market that wants AI returns this quarter” are not natural friends. IBM is being punished today, in part, for having the temerity to invest in a future that is more than eighteen months away.
So aim your cynicism carefully. The lesson of IBM’s brutal day is less about one old company’s stumble and more about a market so intoxicated by a single narrative that it will torch anyone not currently feeding the AI machine, while lavishing fortunes on anyone who is. Call it AI-induced hallucinatory hedonism: the giddy, slightly unhinged conviction that only one kind of spending counts and everything else is dead weight. It is a useful reminder that not everything with a tech logo only goes up.