IBM's chief executive wrote to investors on Tuesday to say the company had "faltered." The stock then fell 25% in a single session, its worst drop ever, erasing close to $60 billion in market value. That is a striking number for a company that processes a large share of the world's banking and airline transactions every day.
The immediate cause was a shortfall in IBM's software and mainframe business. IBM's mainframe computers, the large specialised machines used by banks, airlines, and governments to run core operations, were expected to see a mild decline this quarter. The actual decline was far worse. At the same time, several large software deals that were supposed to close in June did not.
The reason IBM's CEO gave: in the final weeks of the quarter, corporate customers diverted their technology budgets away from software and toward buying servers, storage, and memory chips. They were trying to lock in hardware before prices climbed further.
This is not a routine procurement shift. Memory chip prices have surged roughly 80 to 90 percent quarter over quarter, and analysts forecast the shortage driving those prices will last through 2027 or beyond. The three companies that produce most of the world's memory chips, Samsung, SK Hynix, and Micron, have redirected their production capacity toward specialised chips needed by AI data centres. That leaves less standard memory for everyone else, and what remains costs far more. IDC forecasts that data centres will consume around 70 percent of all memory chips produced globally in 2026, compared with 20 to 30 percent just four years ago.
So large corporations are doing what any rational buyer does when prices are rising and supply is tight: they buy early. The problem for IBM is that those hardware purchases came out of the same quarterly budgets that would have funded software renewals and new consulting contracts.
Software is the engine of IBM's profitability. Its software business carries a gross margin of roughly 83 percent, meaning almost every dollar of software revenue flows through to profit. Its consulting and hardware businesses operate at far lower margins. When software deals slip, the financial impact is disproportionate to the revenue miss.
The selloff spread across the sector. Shares in Workday fell around 10 percent, Salesforce dropped more than 6 percent, and Microsoft fell nearly 3 percent on the same day. Goldman Sachs analysts told clients the IBM miss plays directly into the bear case for software stocks broadly.
Cybersecurity is the other piece of this. IBM noted that customers were also prioritising security spending because AI tools are making cyberattacks faster and cheaper to execute. Global cybersecurity spending is on track to hit $240 billion this year, a 12.5 percent increase from 2025. That money is also coming from somewhere, and in many organisations it is coming from the same pot that funds software upgrades.
For any business that buys enterprise software, the pattern IBM is describing is worth watching. If your own technology suppliers start reporting similar shifts in coming months, it reflects the same underlying pressure: infrastructure and security are absorbing budget that would previously have gone to software. That creates opportunities to push harder on renewal pricing, but it also means vendors under pressure may be more willing to negotiate.
IBM's full second-quarter results are due on July 22. The central question by then will be whether the late-June hardware rush was a one-time panic buy, or the beginning of a longer reordering of corporate technology priorities. The memory shortage, according to most analysts, is not going away before late 2027. That gives companies plenty of reason to keep buying hardware early, and plenty of reason for software vendors to worry.