(Bloomberg) -- Shares of software and IT services companies plunged Tuesday after International Business Machines Corp. reported preliminary results that missed analyst expectations, reigniting questions over the sector's prospects.
Most Read from Bloomberg
US Hits Iran With Strikes, Blockade as Trump Plans Hormuz Charge - Trump Embraces Australian Retirement System Backed by Larry Fink - OpenAI Engineer's 'LOL' Moment Set Stage for Legal Fight With Apple
IBM shares plummeted as much as 25% in premarket trading, putting them on track for their biggest one-day drop on record. Software peers were dragged lower as Microsoft Corp. fell 3%, Workday Inc. dropped 10%, Oracle Corp. fell 2.1%, Salesforce Inc. shed 6.2%, and Autodesk Inc. slid 5%. The iShares Expanded Tech-Software Sector ETF, a proxy for the software sector, slumped 4.5%.
Shares of IT services companies also tumbled with Accenture PLC dropping 7.9%, Cognizant Technology Solutions Corp. declining 7%, and Infosys Ltd falling 7.2%.
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.
The company reported preliminary second-quarter revenue of $17.2 billion, short of the $17.9 billion Wall Street had been anticipating. Chief Executive Officer 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.
"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."
Both software and IT service stocks have 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% in 2026, compared with a gain of more than 74% for the Philadelphia Semiconductor Index.
Most Read from Bloomberg Businessweek
Credit Card Holders Are Using 'Friendly Fraud' to Get Back at Retailers - The Shattering of the Middle East's Most Unlikely Friendship - Washington Is Looking to Keep China From Training Its AI on US Models
©2026 Bloomberg L.P.