IBM Shares Drop $70 Billion After Earnings Miss and AI Concerns

​IBM has lost over $70 billion in market capitalization following a warning from CEO Arvind Krishna that the company would miss its latest earnings expectations. This announcement has heightened investor concerns about IBM's future, especially as artificial intelligence (AI) tools become more prominent in the technology sector.

Key Highlights

• IBM lost over $70 billion in market value after missing earnings expectations.
• CEO Arvind Krishna says only 2 percent of IBM software is at risk from AI tools.
• IBM reported $17.2 billion in revenue and $9.9 billion in gross profit for the latest quarter.
• IBM shares fell 25 percent in a single day and are down 30 percent this year.
• Investors remain concerned about AI's impact on IBM's software revenue.

IBM's Position on AI Impact

Despite investor worries, Krishna maintains that AI will not disrupt IBM's core business. He argues that only about 2 percent of IBM’s software could be replaced by AI tools. The remaining software, he says, helps clients prepare for AI by unlocking data in real time and reducing the cost and complexity of managing it across hybrid infrastructures.

Krishna told CNBC that AI could serve as a tailwind for IBM, helping the company grow rather than hindering it. He explained that IBM's focus on infrastructure software, rather than applications, positions the company to benefit from increased AI adoption.

Financial Performance and Investor Response

In its latest earnings report, IBM reported $17.2 billion in revenue and $9.9 billion in gross profit. However, these figures fell short of Wall Street expectations. The company now expects software revenue growth of 6 to 8 percent this year, down from the double-digit growth rate predicted in January.

IBM shares dropped 25 percent following Krishna’s letter to investors, marking the company’s largest single-day decline. The stock is down about 30 percent for the year. Krishna and Chief Financial Officer Jim Kavanaugh attributed the weakness to delayed spending, not lost demand. They noted that customers are prioritizing servers, storage, and other data-center equipment as AI-related costs increase.

AI Risks and Software Vulnerability

Krishna acknowledged that some IBM software faces risk from AI. He cited Tririga, IBM’s lease management software used by Starbucks for $2 million per year, as an example. This software falls within the 2 percent of IBM’s portfolio that could be replaced by AI tools.

For every dollar IBM earns from its mainframe business, it earns three dollars from software. This ratio underscores why investors are concerned about potential AI disruption to IBM’s software revenue.

Outlook and Market Context

Krishna stated that about a third of the large capital expenditure deals missed in the last quarter have already closed in the first three weeks of the new quarter. He expects that 75 percent of the deals that slipped from the second quarter will return before year-end. Krishna also said there is no evidence of clients moving away from IBM’s mainframe products.

The broader technology sector has also faced skepticism, as investors question whether advanced AI tools from companies like Anthropic and OpenAI could disrupt traditional software business models. The iShares Expanded Tech-Software Sector Exchange-Traded Fund has dropped 17 percent. In February, IBM shares fell 13 percent after Anthropic highlighted Claude Code’s ability to modernize Cobol code, which is widely used on mainframes.