IBM has announced that they are projected to take a big earnings hit in the second quarter which could be dubbed the AI boom toll they are about to pay. The shares of IBM tanked 25 per cent on Tuesday pushing the stock for a steeper single-day decline than it suffered in 1987 ‘Black Monday’ crash. Other software stocks have also suffered decline. The warning also shows that businesses moving towards a secure access to supply-constrained servers, chips, and networking gears are already spending less on other technologies, adding to concerns about a software industry already shaken to its core by the rise of AI tools that can write computer code and even automate tasks.
CEO Arvind Krishna said, ‘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.’ He further said, ‘While we anticipated some supply-chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.’ IBM stated the weakness was largely in its mainframe business, which sells high-powered computers and software that process millions of transactions for industries like airlines and banking.
It is also being mentioned that the businesses were focusing heavily on cybersecurity spending due to recent breakthroughs in AI hacking abilities. For those unaware, the debut of Anthropic’s Claude Mythos has made all the businesses think twice before leaving any vulnerability in their product that can be exploited. Chief Market Analyst at IG Group, Chris Beauchamp, said, ‘This is an ugly moment for IBM and software stocks… the big question will be how long the shift to infrastructure and cybersecurity lasts. A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks’