IBM shares plunged on Tuesday after the tech giant reported worse-than-expected results and said clients were cutting spending on its artificial intelligence infrastructure and software products.

The company’s shares fell 24% at the open. After closing at $290 per share on Monday, the stock opened just above $221 on Tuesday.

The precipitous drop in IBM shares came after it reported a second-quarter “shortfall” in the performance of its software and infrastructure division, linked to the launch of its new z17 mainframes, which are designed to process AI workloads.

IBM CEO Arvind Krishna said a major factor in the lower-than-expected performance was that customers reduced spending on IBM products and reprioritized their capital spending on “server, storage and memory purchases” ahead of “expected price increases.”

The prospect of further price increases appears to have led IBM customers to prioritize hardware purchases over the software and mainframe purchases the company had anticipated.

Krishna said in his letter to investors that while IBM had expected some changes in customer spending patterns, the company “did not anticipate the magnitude of the reprioritization of capital spending.”

“This quarter we faltered,” Krishna said in a letter to investors published Tuesday. “We did not adapt or act quickly enough, and numerous important deals did not close in the timeframes we expected, causing the majority of our shortfall.”

Software Stocks Wobble on Spending Fears

IBM’s warning and sharp drop in its share price spread to other software vendors, with Salesforce falling 4% and Microsoft falling almost 3%. The IGV Technology Software ETF, which tracks a broad basket of software companies, was down 2%.

Driving software stocks lower is a shift in spending patterns brought on by a global memory chip shortage that has driven up hardware prices since late 2025.

Memory giants like Samsung, SK Hynix and Micron have shifted production toward specialized chips that power AI data centers, and that capacity is effectively exhausted by 2026 under long-term contracts. The result is a reduction in the daily memory used by servers, PCs and phones.

Micron’s CEO has said he expects “difficult conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments, coupled with structural supply constraints.”

IBM reported companywide revenue of $17.2 billion in the second quarter, up 1% but below analyst expectations. Revenue in the infrastructure division fell 7%.