Software stocks fell on Tuesday after IBM’s weaker-than-expected preliminary financial results sparked concerns that enterprise customers are shifting spending away from software and towards critical artificial intelligence (AI) infrastructure, triggering a broad sell-off across the sector.
IBM’s update fuelled fears that businesses are reprioritising capital expenditure (capex) as a global memory supply shortage and rising hardware costs force organisations to secure servers, storage systems and memory ahead of software investments.
The market reaction was swift. Accenture fell 7 per cent, ServiceNow declined 8 per cent, Workday dropped 9.7 per cent, Salesforce slipped 6 per cent, Atlassian lost 8.3 per cent, SAP fell 5.5 per cent and Adobe declined 6.1 per cent.
According to Vital Knowledge analyst Adam Crisafulli, IBM’s update is likely to have significant implications for the wider software and IT services industry.
”The IBM update will deliver a devastating blow to software/services stocks as investors will worry about the capex pivot negatively impacting the whole industry, but the race to secure hardware raises its own set of worries,” he said.
IBM reported preliminary revenue of US$17.2 billion for the period, missing analysts’ consensus estimate of US$17.86 billion. Non-GAAP earnings per share came in at US$2.93, below the expected US$3.02.
The company attributed much of the weakness to a late-quarter shift in customer spending patterns. As hardware components became increasingly difficult and expensive to secure, enterprise clients redirected budgets away from software and general-purpose IT projects to lock in critical infrastructure purchases.
The trend has been driven largely by a structural shortage of memory chips, particularly high-bandwidth memory (HBM) and DRAM, as hyperscale cloud providers and AI infrastructure operators absorb a growing share of global production.
The resulting surge in memory prices has significantly increased the cost of deploying AI-ready infrastructure, leaving many organisations with reduced budgets for software subscriptions, licence renewals and new digital transformation initiatives.
Investors are concerned that the spending shift could create near-term revenue headwinds across the software-as-a-service (SaaS) industry and consulting sector if large enterprise customers continue to delay software purchases in favour of securing essential hardware.
IBM also said weaker performance was concentrated in its Z-series mainframe business and the associated transaction processing software portfolio.
In addition, the company noted that widespread cybersecurity concerns during the quarter diverted customers’ attention and investment towards urgent security priorities, delaying broader software purchasing decisions.
The developments have heightened investor concerns that rising AI infrastructure costs could continue to pressure software companies as enterprises rebalance technology spending in an increasingly supply-constrained market.
