IBM shares take a dive following a profit warning. Investors are questioning whether IBM will catch the AI train in time.
Yesterday was a bad day for anyone who holds IBM stock in their portfolio or has a stake in the company in some other way. IBM’s stock took a historic plunge of no less than 25 percent. It had been since before 1990 that the company had experienced such a bad day on the stock market.
The reason is a profit warning by CEO Arvind Krishna. In a profit warning, a company admits it will not meet its projected profit targets. “We didn’t do well this quarter,” a brutally honest Krishna told the Financial Times.
Mainframes and software
A bad quarter can happen to the best of companies, but investors see a sign of things to come at IBM. Today, the company is still primarily associated with mainframes and traditional computing infrastructure. With major acquisitions of Red Hat, HashiCorp, and more recently the data platform Confluent, software has become more central to IBM’s portfolio in recent years.
Nevertheless, IBM’s core business units have been under pressure from AI for some time. Revenue from the infrastructure division, which includes mainframes, fell by seven percent in the second quarter. Mainframes remain a significant source of revenue for IBM, which is one of the few remaining parties that maintains mainframes and even continues to launch new models. The software division performed better, with a five percent increase in revenue.
Old guard vs. new generation
The bulk of IT budgets in recent months did not go to sectors where IBM is strongly represented, such as chips, servers, and storage, driven by high price increases in AI-related hardware. Krishna admits that IBM underestimated this shift and failed to anticipate it sufficiently. IBM thus almost symbolizes the ‘old guard’ being challenged by the ‘new generation’ of AI companies. Anthropic believes it can quickly make IBM’s mainframes obsolete.
The old fox hasn’t quite lost its tricks yet. With Bob, it is fully engaging in AI-driven software development. However, Bob still seems to have to convince the general public that IBM can also compete on the global AI stage. Can IBM turn the tide quickly?