IBM's pre-earnings warning to investors reveals a new reality in the AI spending boom: There's only so much money to go around, so some tech companies are winning at the expense of others.
The company said customers are shifting technology budgets in two important ways. First, they're spending heavily on memory chips, servers, and storage to build AI infrastructure before expected price increases. Second, they're diverting more money toward cybersecurity as companies race to defend against new AI-powered threats.
The result is what amounts to a giant sucking sound across corporate IT budgets. Money flowing into AI is leaving less available for other technology purchases, including IBM's latest mainframe computers and the software that runs on them.
IBM said customers spent the final weeks of June buying servers, storage, and memory to lock in supply before prices rose, a much bigger shift than it expected. That hurt sales of its new Z mainframes and related software.
The company also blamed "rapidly evolving" cybersecurity concerns for delaying numerous large deals. IBM didn't identify the cause, but Barclays analysts said the comments likely refer to Anthropic's recently launched Mythos AI model, which has heightened concerns that AI can rapidly uncover software vulnerabilities. The analysts said companies appear to be accelerating security spending, potentially at the expense of other technology projects.
The market reacted accordingly. Shares of memory companies rose, with SK Hynix surging more than 20% on Nasdaq on Tuesday. Shares of cybersecurity vendors, including CrowdStrike and Palo Alto Networks, also jumped.
The bigger question is whether IBM is experiencing a temporary budget shuffle or something more lasting. "There was no indication that this trend has yet abated," BNP Paribas analysts wrote in a note to investors on Tuesday. They expect IBM to share more on its outlook when the company reports results on July 22.
Barclays analysts argued the spending shift is probably temporary, with customers delaying mainframe purchases while they absorb higher infrastructure costs.
And this isn't likely the SaaSpocalypse: IBM's other software businesses, including Red Hat, continued to perform well, with revenue growth actually accelerating.
Let's call it the "Mainframe-alypse." Not sure that one will catch on.
Anyway, IBM's warning highlights a broader trend emerging across enterprise technology: AI is forcing companies to make difficult choices about how existing technology budgets are allocated, producing clear winners and losers.
There's only so much money to go around. When something as powerful as generative AI emerges, it shakes things up in dramatic ways.
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