Shares of major global software and IT services companies declined on Thursday after IBM issued weaker-than-expected second-quarter guidance, raising fresh concerns over enterprise technology spending and prompting a broad selloff across the sector.
IBM shares plunged as much as 25% to $217.56 after the company projected revenue and earnings below Wall Street expectations.
The weakness spread across peer companies. Cognizant, which had fallen as much as 4.3% earlier in the session, recovered some losses but was still trading 2.45% lower at $43.08 as of 10:13 a.m. EDT. Salesforce also pared part of its decline, trading 2.92% lower at $166.12 after opening down 4.8%. Accenture slipped 2.98% to $134.42 after falling nearly 5% at the opening bell.
Other technology names remained under pressure, with Adobe down 4.25%, Oracle losing 2.18% and ServiceNow falling 5.56%.
The selloff followed IBM's earnings warning, with the company forecasting second-quarter revenue of $17.2 billion, representing a 1% year-on-year increase, and adjusted earnings per share of $2.93, below analysts' expectations of $3.01.
According to IBM, the earnings miss was driven primarily by weakness in its Infrastructure and traditional Software businesses, while its Consulting division remained broadly stable.
ALSO READ: IBM Shares Plummet 23% As IT Major Disappoints Street With Earnings Scorecard
CEO Arvind Krishna attributed the shortfall to customers shifting technology budgets away from software and consulting projects towards AI infrastructure investments.
"In the last few 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," Krishna said in a letter to investors.
"While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," he added.
The commentary has heightened concerns that enterprises are temporarily prioritising spending on AI infrastructure, including servers, storage and memory, at the expense of software implementation and consulting projects.
The development is being closely watched by investors as IBM is widely regarded as an early indicator of enterprise technology spending trends. The company's outlook could also have implications for Indian IT exporters, with the sharp fall in IBM shares already weighing on the ADRs of Infosys and Wipro in US trading.
Despite the near-term weakness, IBM continues to invest aggressively in next-generation technologies, including a planned investment of more than $10 billion in quantum computing over the next five years and a strategic partnership with OpenAI to develop AI-powered enterprise security solutions.
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