IBM shares plunged more than 10% at the market open on Thursday, joining a sell-off in software names including ServiceNow and Oracle after first-quarter results failed to calm investor anxiety over artificial intelligence’s effect on the business.
The company said software sales grew more than expected in the quarter, but revenue in its consulting segment came in shy of estimates. IBM also kept full-year guidance for constant currency revenue growth above 5%, short of Wall Street’s expectation for more than 5.1%.
The drop came as investors continued to dump software stocks on fears that AI will disrupt business models and replace software products. IBM has tried to argue the opposite, saying AI will make its offerings more attractive as clients scale use cases. Chief Executive Arvind Krishna said, “As clients scale use cases, AI continues to be a tailwind for our global business,” but the market was not convinced.
That skepticism has shadowed IBM for months. In February, the stock fell more than 20% in its largest monthly decline in decades, even after Anthropic unveiled a tool aimed at modernizing a programming language that runs on IBM mainframes. IBM has spent years trying to recast itself as a hybrid cloud software provider through acquisitions, buying Red Hat in 2019, HashiCorp last year and, most recently, Confluent.
The Confluent deal has only recently closed and is expected to add revenue, but it also drops IBM deeper into the software fight that investors are now rethinking. The company’s pitch is that more AI should feed demand for its products. Thursday’s reaction suggested Wall Street is still waiting to see that story show up in the numbers.
