Inside CEO Arvind Krishna’s letter that preceded IBM’s worst one-day stock fall since 1987
IBM's shares tanked 25 per cent on Tuesday, putting the stock on track for an even steeper single-day decline than it suffered during the 1987 "Black Monday" crash.
IBM stock plunged after its chief executive officer (CEO) Arvind Krishna admitted that the company had “faltered” in keeping pace with a shift in corporate spending from software to data-centre infrastructure and would take a big earnings hit in the second quarter, in the clearest sign yet of AI’s growing toll on the sector.
In a letter released on Tuesday, Krishna told investors that capital expenditures were flowing toward chips, servers and storage at a far faster pace than anticipated and that IBM failed to adapt to the new circumstances.
The company expects second quarter revenue from its infrastructure unit, which includes its mainframe business, to fall 7 per cent year-over-year.
“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected,” Krishna wrote.
Krishna said the company had expected some disruption after the launch of its z17 mainframe but underestimated the extent to which customers would redirect capital spending towards AI infrastructure in the final weeks of June.
“We saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases,” he wrote.
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‘IBM did not anticipate the magnitude of capex reprioritisation’
He added that IBM had anticipated some supply-chain-related disruption but “did not anticipate the magnitude of the capex reprioritisation.” The company also cited rapidly evolving cybersecurity concerns across the industry as another factor that delayed customer buying decisions.
Despite the disappointing quarter, Krishna said the company remained confident about its long-term strategy.
“These are not excuses, but they are realities. Our job is to help our clients through uncertainty,” he said, adding that IBM continued to see strength across several parts of its business.
Software revenue rose 5 per cent, while Red Hat posted 11 per cent growth. IBM also said its distributed infrastructure business recorded its strongest performance on record, rising 37 per cent as customers increased spending on AI-ready hardware.
IBM Q2 2026 — MARKET SHOCK
Why IBM shares suffered their biggest one-day fall since 1987
The AI spending boom, slipped enterprise deals and a 7% infrastructure slump wiped 25.2% off IBM's stock in a single session.
AI boom accelerates
↓
Companies shift spending
↓
✗ Software / infra deals
✓ AI chips, servers, storage, memory
↓
IBM says large deals slipped
↓
Infrastructure revenue -7%
↓
CEO admits company "faltered"
↓
IBM stock -25.2%
WHAT IBM'S CEO TOLD INVESTORS
Arvind Krishna's admissions, in his own letter
1
Clients shifted spending to AI infrastructure
In late June, customers redirected capex toward servers, storage and memory to secure supply-constrained hardware ahead of price rises.
2
IBM didn't adapt quickly enough
Krishna said the company "did not adapt and move quickly enough" to the scale of the shift.
3
Large enterprise deals missed deadlines
Numerous large deals failed to close on the timelines expected, driving most of the shortfall.
4
Infrastructure revenue fell 7%
Worse than the low-single-digit decline IBM had guided for as its z17 mainframe cycle normalised.
Krishna also underlined IBM’s latest AI initiatives, including Lightwell, a new AI-powered cybersecurity platform backed by a $5 billion commitment and supported by more than 20,000 engineers.
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He also reiterated IBM’s aggressive push into quantum computing, saying the technology is no longer a distant goal.
“Quantum computing is no longer decades away, it is upon us, and we are investing aggressively,” Krishna wrote.
The company reported preliminary second-quarter revenue of $17.2 billion, up 1 per cent year-on-year. Software revenue increased 5 per cent, consulting revenue was largely flat, while infrastructure revenue declined 7 per cent.
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Krishna said IBM would accelerate new initiatives to improve execution ahead of its full earnings announcement later this month, maintaining that the company still had “conviction in the strength of our portfolio and the strategic transformation of our business.”
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