"A Hammer Blow": Analyst Sees IBM's Plunge as a Turning Point for the IT Industry

International Business Machines’ warning this week that sales would fall significantly short of expectations was a clear sign of the widening gap between companies that have benefited from the artificial intelligence boom and the rest of the tech sector, according to Bloomberg. Analysts at Zacks Investment Management likened it to a “hammer blow.” It sent IBM shares tumbling to their sharpest decline in history.

The drop in IBM’s stock on Tuesday, July 14, by 25.3% following a warning that sales would fall short of expectations served as a clear illustration of how the current investment boom surrounding artificial intelligence is hindering major technology companies that offer in-demand products and services unrelated to AI, according to Bloomberg.

“This isn’t just a setback anymore; it’s like a hammer blow,” said Brian Mulberry, senior market strategist at Zacks Investment Management. “It’s not that there’s no demand [for other products and services]. There is. It’s just that companies can’t afford them because their capital expenditures are limited.”

The divergence between the winners of the AI boom and the rest of the tech sector is most clearly illustrated by Salesforce and ServiceNow, whose products help companies manage sales, human resources, and IT infrastructure, according to Bloomberg. Since the start of the year, shares of both companies have lost about a third of their value and ranked among the 20 worst-performing stocks in the S&P 500, the agency noted. At the same time, the Philadelphia Semiconductor Index, which includes processor and memory manufacturers, has risen 62% since the start of 2026.

That is precisely why the news from IBM has become a “turning point for the technology sector,” according to Malberry. According to him, the situation shows that companies are placing less priority on traditional IT products and services while simultaneously increasing investments in AI infrastructure as well as in cybersecurity software, for which demand is rising due to increased risks associated with AI. As these costs rise—particularly the rapid increase in the price of memory—businesses are having to reevaluate their budgets and cut costs in other areas.

Enterprise software developers such as Workday and SAP will also feel the impact of the shift in spending from IT products to hardware and cybersecurity, according to Bloomberg Intelligence analyst Anurag Rana. In addition, key industry indicators—the volume of unfulfilled cloud orders and new subscription sales—may fall short of Wall Street’s expectations when companies begin releasing their quarterly reports in the coming weeks. ServiceNow is set to report as early as Wednesday, July 22.

“Even if the weak results were due to a reallocation of IT budgets, the market will likely interpret this as a sign that artificial intelligence is beginning to undermine their core business, and this could intensify pressure on valuations across the entire sector,” Rana wrote in a note on July 14.

Wall Street is already revising its forecasts for the software and IT services sector. According to Bloomberg Intelligence, analysts now expect earnings growth for companies in the sector to reach 16.5% in 2027, while the consensus forecast has been declining for seven consecutive weeks. The SaaS Index—which includes companies operating on the Software as a Service (SaaS) model, such as Salesforce, Workday, ServiceNow, HubSpot, Datadog, and others—has fallen 26% since the start of the year. By comparison, the broader software index—which also includes Microsoft, Oracle, Palantir, AppLovin, and others—has lost 11%. During the same period, the Nasdaq 100 technology index has gained 13%.

Such a sharp drop in software developers’ stock prices could give investors the opportunity to buy stocks they like at relatively low prices, Bloomberg notes. The SaaS Index is currently trading at a forward multiple of around 15—nearly its lowest level on record—and at a record discount to its 10-year average of 53. However, many professional investors remain cautious, Bloomberg emphasizes.

“Investing in software developers right now is like swimming in a river where there are definitely piranhas. You just don’t know exactly where they are, and you think you’re safe because you’ve thoroughly analyzed the situation,” Eric Clark, chief investment officer at Accuvest Global Advisors, told Bloomberg. “The sector needs a quarter after which everyone will say: ‘That’s it!’—and it will become clear where the truly strong companies are headed. Or else stocks must become so cheap that the margin of safety relative to their intrinsic value is large enough for investors to be willing to buy.”

This article was AI-translated and verified by a human editor