Software developers' stocks plummeted following IBM's warning. What's wrong with the sector?

Shares of software developers and IT companies plummeted on Tuesday, July 14, following a pessimistic warning from International Business Machines about weak quarterly results. This has once again heightened investors’ concerns about the entire sector, Bloomberg notes.

IBM's stock plummeted by a quarter during Tuesday's trading session, hitting a low of 26.5% below its opening price. This marks the company's sharpest one-day drop in at least 1968, according to Bloomberg.

Following IBM, shares of other software developers also fell, although many subsequently recouped some of their losses. For example, Microsoft shares fell 3.1% but limited their decline to 1%; Workday shares dropped more than 8% before slowing to about 3%; Salesforce shares initially fell nearly 6% but then closed down just 1%. Autodesk shares fell by nearly 5% at one point, while SAP’s American Depositary Receipts (ADRs) dropped by nearly 5%. The iShares Expanded Tech-Software Sector ETF, which is considered an indicator of the software sector, fell 2.7% but also partially recovered from its losses.

Shares of companies providing IT services also came under pressure. Accenture shares briefly fell nearly 6%, Cognizant Technology Solutions shares fell 5.8%, and Infosys shares fell 5.6%.

IBM reported that its second-quarter revenue, based on preliminary figures, will be $17.2 billion, compared with Wall Street’s forecast of $17.9 billion. CEO Arvind Krishna said that customers are postponing spending on IBM products and redirecting investments toward components for artificial intelligence infrastructure, including servers, data storage systems, and memory. IBM’s full report will be released on July 22.

“We were unable to adapt quickly enough to the new conditions, and many major deals were not closed by the deadlines we had anticipated, which was the main reason for the shortfall in revenue. These are not excuses, but reality,” Krishna wrote in a letter to investors.

Barclays analyst Raimond Lenschow reaffirmed his “Overweight” rating (meaning “above market,” corresponding to a buy recommendation) for IBM shares following the publication of Krishna’s letter. According to the analyst, at first glance, IBM’s revenue figures show “weakness across the board.” “To assess how justified the stock’s reaction is, it’s important to understand whether this statement changes the investment thesis on IBM, which is based on the company’s transition to more modern software solutions with higher growth rates,” — Lenshov wrote in a note cited by Investor’s Business Daily. “In our view, it does not, since IBM’s statement suggests that the main reason for the shortfall was mainframes and related segments, primarily transaction processing software.”

If there is a silver lining in this situation, it is that, according to Mizuho analyst Daniel O’Regan, IBM’s report confirms that spending on AI infrastructure “remains high,” MarketWatch reports. At the same time, O’Regan believes that IBM’s report sends a more negative signal to consulting firms and IT service providers than to the AI sector as a whole. This is because clients have redirected funds that could have been allocated to consulting projects or IT services toward the purchase of AI infrastructure equipment instead.

Shares of software developers and IT service providers have been under pressure all year as investors fear that the rapid spread of artificial intelligence will reduce demand for their services, according to Bloomberg. Since the beginning of 2026, the iShares Expanded Tech-Software Sector ETF has lost more than 12%, while the Philadelphia Semiconductor Index has risen by more than 78%.

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