‘We did not adapt and move quickly enough’: IBM CEO Arvind Krishna laments enterprise spending pivot as company issues profit warning

IBM shares plummeted by more than 25% on Tuesday after the tech giant posted underwhelming preliminary second-quarter results.

In a profit warning released ahead of the company’s expected earnings call on 22 July, CEO Arvind Krishna attributed sluggish performance to the ongoing memory crisis and AI-related cybersecurity concerns.

Revenue for the quarter ending June came in at $17.2 Billion, marking just a 1% year-over-year increase and well below expectations. Notably, infrastructure revenue dipped by 7% across the quarter.

In a statement detailing the results, Krishna suggested the company had “faltered” and been taken unaware by rapidly changing enterprise spending habits.

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Put simply, customers have shifted their focus away from software spending toward infrastructure investments ahead of expected price increases.

AI infrastructure build-outs have sent hardware prices skyrocketing in recent months, with enterprises scrambling to secure servers, chips, and storage components.

“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 wrote.

“While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization.”

Krishna’s warning spooked investors, sparking yet another sell-off in the software market. Shares at Microsoft, Salesforce, and ServiceNow all dipped in the wake of the announcement.

Software investors have been through the wringer so far in 2026, largely due to concerns about a looming ‘SaaSpocalypse’ due to recent advances in AI.

As ITPro reported in February, Anthropic sparked a mass sell-off after the release of its Claude Cowork tool, with investors worried the solution could render some software services obsolete.

Chris Beauchamp, chief market analyst at IG, described the results as an “ugly moment for IBM and software stocks”.

“The big question will be how long the shift to infrastructure and cybersecurity lasts,” he said. “A few more months might be bearable, but more than that and serious questions will be asked all over again about software stocks.”

IBM falling flat

IBM’s infrastructure earnings are a clear sign of the ongoing rush and changing priorities for enterprise customers.

Krishna noted that many customers were scrambling to get ahead of further price increases, which impacted its higher-margin mainframe and associated software offerings.

In April, IBM unveiled its new z17 mainframe, hailing it as the “first mainframe fully engineered for the AI age”. General availability for z17 landed in mid-June, and as ITPro recently reported, the firm also plans to roll out compact versions in August.

While the z17 launch was met with much fanfare, Krishna noted results were “worse than our expectations”.

“These conditions require our teams to execute perfectly, and this quarter we faltered,” Krishna wrote. “We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.”

“These are not excuses, but they are realities. Our job is to help our clients through uncertainty, to find paths forward to grow their businesses no matter what is happening in the external environment.”

Silver linings for cybersecurity vendors

While hardware price issues dominated the enterprise focus, Krishna also noted clients were “distracted” by AI-related cybersecurity concerns in recent months.

The IBM chief said the launch of powerful new models such as Anthropic’s Claude Mythos, for example, has sparked widespread concerns among cybersecurity experts.

IBM has moved quickly to compensate for these changes, according to Krishna. The company recently launched a new security initiative, Project Lightwell, aimed at driving AI-powered software security supply chain improvements.

As with hardware-related concerns, rapid changes in the cybersecurity landscape have also prompted a rethink on spending, Krishna told CNBC.

“Mythos is making people pause to say, wait, how much do I need to spend on cyber? They’re pausing on new deals until they know,” Krishna commented.

These comments sparked a rally in cybersecurity stocks, with CrowdStrike, Zscaler, Palo Alto Networks, and Okta all recording significant boosts.

CrowdStrike, for example, surged 12% while Palo Alto Networks and Zscaler stocks rallied at around 7% respectively.

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