IBM cuts forecast, shares plunge on AI spending shift

IBM issued a preliminary second-quarter earnings warning, revealing that customers shifted spending toward AI infrastructure (servers, storage, memory) away from its mainframe and software products. Revenue of $17.2 billion missed estimates of $17.86 billion, and adjusted EPS of $2.93 missed $3.02. The company cut its 2026 revenue growth forecast to 4%-5% from over 5%. Shares plunged 25% in a single day, the worst drop in over a century, dragging down the broader software sector and indices like the Dow Jones. Cybersecurity concerns from Anthropic's Mythos AI model also distracted clients. IBM's mainframe revenue fell 42%, while OpenShift grew 11% and non-mainframe server/storage surged 37%. IBM announced a $5 billion Lightwell initiative for open-source security, backed by major banks. The event underscores a growing divide between AI winners and traditional tech companies.