To The Moon

On Wednesday, June 14, 2023, at the IBM campus in Foster City, California, CEO Arvind Krishna issued a significant warning, causing the company's stock to plummet and potentially marking the worst single-day performance in the 115-year history of the firm.

IBM shares plunged 24% at the opening. The company's previous largest single-day drop occurred on "Black Monday," October 19, 1987, when the stock fell 23.7%, coinciding with one of the most severe market crashes in U.S. history.

While IBM is scheduled to officially release its quarterly financial report on July 22, Krishna preemptively disclosed an earnings warning, stating that the company faced operational pressures over the past three months. Corporate clients significantly adjusted their technology budgets, rushing to purchase servers, storage devices, and memory chips essential for AI data centers.

With funds being heavily diverted, clients cut budgets for purchasing IBM's new z17 mainframe. This mainframe was the company's core product, a strategic bet to capture enterprise clients in the AI era.

In the second-quarter performance statement, Krishna said, "The actual operating conditions were worse than we anticipated, and we did not adjust and respond quickly enough."

In recent months, demand for core data center components has surged, driving up prices for chips, particularly memory and storage processors. Apple has already increased prices for Macs and iPads, and other technology companies are expected to follow suit.

IBM had anticipated some industry shifts, but the extent of the change in client behavior—rushing to buy chip equipment and making concentrated purchases while prices were still somewhat controllable—far exceeded the company's expectations.

Krishna stated, "Our performance expectations had incorporated some impact from the supply chain, but we completely failed to anticipate such a drastic shift in the priorities of corporate capital expenditures."

IBM added that Anthropic's launch of the Mythos large language model also diverted client purchasing attention. This AI firm had warned that Mythos could provide tools for hackers to preemptively exploit cybersecurity vulnerabilities in corporate systems, leading several major clients to postpone large partnership orders originally planned for this quarter.

"The current market environment requires teams to operate with extreme efficiency, but this quarter we made execution errors. These are not excuses; they are objective realities," Krishna said.

He stated that IBM is rapidly introducing innovative solutions to navigate this period of industry turbulence. To hedge against the security risks posed by Mythos, the company quickly launched the open-source security software Lightwell.

Preliminary operational data shows that last quarter's revenue grew by only 1% year-over-year, and unadjusted earnings per share fell by 2%, with both metrics falling short of internal expectations.

Like many technology companies, IBM's stock price has continued to fluctuate weakly this year. Since 2026, the stock has declined by 2%, as investors in the tech sector struggle to determine how companies should adapt to the rapidly evolving industry landscape.