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Shares of software and IT services companies plunged Tuesday after International Business Machines Corp. reported preliminary results that missed analyst expectations, reigniting questions about the sector.
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IBM shares plummeted as much as 26 per cent on the results, nearing their biggest one-day drop since at least 1968. The company reported that it missed expectations because customers shifted capital spending from IBM’s products to chips and servers.
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Software peers were dragged lower as Microsoft Corp. fell two per cent, Workday Inc. dropped 6.3 per cent, Salesforce Inc. shed 3.2 per cent, and Autodesk Inc. slid 2.4 per cent. U.S.-listed shares of SAP SE fell 3.4 per cent. The iShares Expanded Tech-Software Sector ETF, a proxy for the software sector, slumped as much as 2.7 per cent before paring that decline.
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Shares of IT services companies also tumbled with Accenture PLC dropping 2.9 per cent, Cognizant Technology Solutions Corp. declining 2.2 per cent, and Infosys Ltd. falling 2.8 per cent.
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IBM’s results “will deliver a devastating blow to software/services stocks as investors will worry about the capex pivot negatively impacting the whole industry,” wrote Adam Crisafulli, founder of Vital Knowledge.
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The company reported preliminary second-quarter revenue of US$17.2 billion, short of the US$17.9 billion Wall Street had been anticipating. Chief executive Arvind Krishna said IBM customers were holding back spending as they instead shifted their capital to components used in artificial intelligence infrastructure, including servers, storage, and memory.
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“We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” Krishna wrote in a letter to investors. “These are not excuses, but they are realities.”
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Both software and IT service stocks have been pressured throughout this year, as investors fret that the proliferation of AI will reduce demand for their services. The iShares software ETF is down more than 12 per cent in 2026, compared with a gain of more than 78 per cent for the Philadelphia Semiconductor index.
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