IBM Sounds the Alarm on the Rise of AI Weighing on Software Budgets; Stocks Plunge in Boursorama

IBM has sounded the alarm on the growing influence of artificial intelligence on software budgets, warning that the sector is facing a significant shift in investor confidence. The company's shares plummeted 25% on Tuesday, the steepest decline since the 1987 'Black Monday' crash, as investors grew increasingly wary of the AI-driven market.

The sector's woes have been further exacerbated by the emergence of new technologies like Mythos, an AI-powered platform introduced by Anthropic this year, which has the capability to uncover vulnerabilities in logiciels and cybersecurity systems. This has led to a surge in investment towards infrastructure and cybersécurité, at the expense of other technologies. According to IBM's CEO Arvind Krishna, the company had anticipated some impact on their supply chain but was caught off guard by the magnitude of the shift in investor behavior.

Mr. Krishna explained that the company had witnessed a significant reorientation of investor spending towards infrastructure, data storage, and memory in the run-up to anticipated price hikes. He noted that many major transactions had not materialized as expected, contributing to the company's underwhelming quarterly performance. IBM's mainframe business, which sells powerful computers and software to banks and airlines, has been particularly affected by this shift.

The company's woes are also attributed to the growing importance being given to cybersecurity in the wake of recent AI-driven hacking incidents. As investors increasingly prioritize spending on cybersecurity measures, software companies like IBM are facing significant revenue pressure. The company's forecast for a 1% revenue growth to $17.2 billion in the second quarter, falling short of analysts' estimates, is a clear indication of the sector's struggles.

IBM is attempting to reduce its dependence on the cyclical mainframe business by focusing on its more profitable software division, particularly its Red Hat unit, which provides software to execute applications on multiple cloud platforms. However, this shift is likely to take time, and experts are still uncertain about the duration of the transition. Chris Beauchamp, chief analyst at IG Group, warned that a prolonged period of uncertainty could lead to further questioning of the software sector's fundamentals.

The company's efforts in the field of quantum computing, including a $10 billion investment to build the first large-scale quantum computer by 2029, are seen as a potential silver lining. However, these initiatives are still in their early stages and are unlikely to offset the weakness in the company's core software and infrastructure businesses in the near term. The company is scheduled to release its second-quarter results on July 22.

IBM's struggles are a clear indication of the broader challenges facing the software sector, which is grappling with the implications of AI-driven technologies. As the sector continues to navigate these waters, investors will be watching closely to see how these developments play out in the months ahead.

With a market capitalization of $272.78 billion, IBM risks losing a staggering $70 billion in value if its losses persist. The company's competitors, including Microsoft, ServiceNow, Salesforce, and Intuit, have also suffered losses, ranging from 2% to 5%.

As the sector continues to adapt to the changing landscape, one thing is clear: the impact of AI on software budgets is only going to grow more pronounced in the years ahead.