Article: IBM’s shares tumbled 25% on Tuesday, erasing roughly $69 billion from its market value and marking the steepest one-day drop the company has seen in almost four decades.

Why the market turned on IBM

Analysts traced the sell-off to a rapid reallocation of corporate technology budgets. In the weeks leading up to the crash, IBM’s chief executive said customers were prioritising servers, storage and memory to lock in scarce hardware before prices rise. Those “large deals” the firm had counted on never materialised, leaving a gap in expected revenue.

The mainframe and software business under pressure

IBM’s legacy mainframe segment, a backbone for high-volume transaction processing in banking and aviation, felt the impact most sharply. Adding to the strain, advanced AI models such as Anthropic’s Mythos have shown the ability to uncover weaknesses in existing software and encryption, prompting enterprises to divert spending to cybersecurity defenses.

Forecasts that missed the mark

The company’s outlook for the second quarter reinforced investor anxiety. IBM projected revenue growth of just 1% to $17.2 billion, falling short of the consensus estimate of $17.86 billion. Adjusted earnings per share were expected at $2.93, below the $3.02 analysts had pencilled in. Those numbers underscored the short-term earnings pressure stemming from the slowdown in software and mainframe sales.

Long-term bets: quantum and AI partnerships

To counter the immediate headwinds, IBM is leaning on longer-term initiatives. The firm announced a commitment of more than $10 billion to build a large-scale quantum computer by 2029, a move intended to position it at the frontier of next-generation computing. It also highlighted collaborations with leading AI firms, including a partnership that could bring OpenAI models to IBM’s cloud platform. Those projects remain in early stages and, for now, are insufficient to offset the volatility hitting the company’s traditional revenue streams.

What to watch next

  • Quarterly results: The upcoming earnings release will reveal whether the 1% revenue growth forecast holds and whether any unexpected deals surface.
  • Hardware order book: Signs of a rebound in server and storage commitments would indicate that the current shortage is easing.
  • Progress on quantum: Milestones in IBM’s quantum roadmap could sway long-term investors looking beyond the present dip.
  • AI partnership rollout: