IBM sell-off fails to clear buy hurdle as AI spending shift pressures outlook

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IBM sell-off and AI outlook

Highlights

IBM shares drop about 25% after preannouncing Q2 revenue, earnings, and software revenue growth below Wall Street expectations due to failing to close several large deals.
CEO Arvind Krishna acknowledges IBM's weak quarter and shifting enterprise IT budgets toward cybersecurity, hardware, and AI 'tokens,' leaving other IBM products disadvantaged.
With 2027 IT budgets expected to favor AI and security, investors face prolonged pressure on IBM and similar companies tied to secondary technology stack areas.

Budget shift drives IBM concerns

As reported by CNBC, Cramer says IBM is landing on the wrong side of a major change in enterprise technology spending, even after the stock’s steep decline. He argues that companies are increasingly concentrating IT budgets on cybersecurity, hardware and AI "tokens," the consumption-based costs tied to using AI models, while other projects are being pushed aside.

IBM shares tumble about 25% after the company preannounces disappointing second-quarter results ahead of next week’s scheduled earnings release. Revenue, earnings and software revenue growth all miss Wall Street expectations, and CEO Arvind Krishna says the company "faltered" as several large customer deals fail to close.

Cramer says IBM has too many products and services that fall outside the spending categories now commanding the most corporate attention, despite what he describes as a decent overall AI narrative. In his view, that makes the earnings shortfall one of the clearest signs yet that artificial intelligence investment is reshaping broader enterprise technology demand.

2027 planning adds pressure to outlook

Cramer praises Krishna for taking responsibility for the weak quarter and says IBM still has attractive long-term businesses. He also notes that the stock now yields more than 3%, but says those positives do not outweigh the risk that the company remains exposed to changing customer priorities.

He says IT managers are now putting together budgets for 2027, reinforcing concern that cybersecurity, hardware and AI will continue to dominate spending plans. That leaves businesses tied to other parts of the technology stack facing a tougher environment, and Cramer says he is too worried about those trends to call IBM safe to buy.

Cramer adds that he hopes IBM is dealing with delayed deals rather than canceled ones, but says that uncertainty is not enough to support a recommendation on the shares. The caution underscores broader investor concern that companies outside the main AI infrastructure and security themes may face prolonged pressure as enterprise customers reallocate spending.

In our earlier report on shifting enterprise tech budgets, we highlighted IBM CEO Arvind Krishna’s comments that customers are redirecting spending toward servers, storage, cybersecurity defenses, and AI computing. We also noted that this reallocation helped lift major cybersecurity stocks even as IBM faced scrutiny after its preliminary second-quarter update disappointed investors.

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