IBM Shares Plummet 24% After Initial Results Disappoint Wall Street

Shares in IBM plunged 24 percent on Tuesday after the US tech giant released disappointing preliminary second-quarter results, blaming a shift in spending by customers due to expected higher prices for memory chips and other AI-related infrastructure.

"We did not adapt and move quickly enough," IBM CEO Arvind Krishna said in a letter to investors. The company said revenue for the three months ending in June came in at $17.2 billion, up just one percent.

A global rush by tech companies to build out artificial intelligence infrastructure has sent demand for servers, memory chips and storage soaring, driving up prices and creating supply shortages across the industry.

IBM said that toward the end of June, many of its big corporate customers rushed to buy that hardware to get ahead of expected price increases. 

That rush pulled spending away from IBM's higher-margin mainframe computers and related software -- the products the company had been counting on.

Cybersecurity concerns across the tech industry also distracted clients during the quarter, IBM said, and a number of large deals failed to close on time.

The company's infrastructure business -- which includes its flagship mainframe line -- saw revenue fall seven percent. 

Software revenue grew five percent but still came in below expectations.

On the positive side, IBM's Red Hat unit, which sells open-source software, posted 11 percent revenue growth.

The company's server and storage business outside of mainframes surged 37 percent as clients snapped up that equipment.

IBM also announced Lightwell, a $5 billion initiative to fix vulnerabilities in open-source software, with backing from major banks including Bank of America, JPMorganChase and Goldman Sachs.

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