IBM Corp. shares plunged as much as 23% in premarket trading on Tuesday after the technology giant released preliminary second-quarter results that missed Wall Street expectations, with both revenue and earnings falling short of analysts' estimates.
The stock was trading at $226.50 in premarket trading, down 21.96% from its previous close of $290.23, after briefly falling by as much as 23%, as investors reacted to the weaker-than-expected earnings scorecard.
IBM projected adjusted earnings of $2.93 a share on revenue of $17.2 billion for the second quarter. Analysts surveyed by FactSet had expected earnings of $3.01 per share on $17.86 billion in revenue, according to CNBC.
The company said the earnings miss was largely driven by an unexpected shift in customer spending late in the quarter, with enterprises prioritising investments in hardware infrastructure over software and consulting projects.
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"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," Chief Executive Officer Arvind 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.
Krishna also acknowledged that IBM failed to respond quickly enough to the sudden change in customer demand.
According to preliminary figures, IBM's software business grew 5% year-on-year, while consulting revenue was broadly flat. The infrastructure segment declined 7%, reflecting softer demand for legacy technology offerings, The Wall Street Journal reported.
The company also expects GAAP earnings of about $2.27 per share, down roughly 2% from a year earlier, while its pre-tax income margin is projected at 14.4%, narrowing by 90 basis points.
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The earnings warning comes despite IBM's aggressive push into next-generation technologies. Earlier this year, the company unveiled plans to invest more than $10 billion in quantum computing over the next five years, targeting a large-scale fault-tolerant quantum computer by 2029.
IBM has also expanded its artificial intelligence ambitions through a partnership with OpenAI focused on enterprise application security, while continuing to build on its Red Hat-powered open-source software ecosystem.
Before Tuesday's sell-off, IBM shares had rallied about 21% over the past three months, buoyed by optimism around AI and quantum computing initiatives. However, the disappointing quarterly update overshadowed those growth bets, triggering one of the stock's sharpest single-day declines in recent years.
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