Shift in customer spending to AI hardware cited as cause of IBM's sharp drop in share price

Shares of International Business Machines dropped by one-quarter on Tuesday following a profit warning the company issued, which cited a shift in customer spending from software to AI hardware and memory chips. 

The company said the performance of its software and infrastructure business fell short of expectations in the second quarter, the Wall Street Journal reported, and the company failed to respond in time to the shift in market conditions. 

In a letter to investors, Chief Executive Arvind Krishna said the performance of IBM's infrastructure arm was worse than anticipated. 

Manufacturers of memory chips were blindsided by the rapid rise of AI, which has led to a supply shortfall and driven up prices of products requiring memory. Big enterprise customers like financial institutions, which are a core customer base for IBM, are vulnerable to fluctuations in chip prices due to the high volume of computing power they purchase.