Software and consulting stocks sold off after IBM's preliminary second-quarter results missed on revenue and earnings and flagged a shift in how enterprises spend. Microsoft fell more than 3%, dragged into a wider fear that companies are diverting IT budgets from software toward AI hardware.
Microsoft dropped more than 3% as software and consulting stocks sold off sharply ahead of the U.S. market open. The trigger came from IBM, whose preliminary second-quarter results missed expectations on both revenue and earnings and flagged a shift in enterprise customer behavior that investors read as a warning for the broader software market.
The selling reached across the sector. IBM led the decline at more than 20%, followed by Accenture at around 8% and Cognizant, ServiceNow at around 7% each. Salesforce and Workday each fell around 5%, while Adobe, HubSpot, Datadog and Microsoft dropped more than 3%.
Budgets shift from software to AI hardware
The market focused on comments from IBM CEO Arvind Krishna about customer behavior toward the end of June. According to IBM, many enterprise customers have begun redirecting IT budgets away from software, traditional IT services, and digital transformation projects toward servers, storage systems, and memory chips, trying to secure critical hardware before prices rise further.
The driver behind the trend is the ongoing global shortage of HBM and DRAM memory. Demand from hyperscalers and AI infrastructure investments continues to push up prices for key data center components. As a result, enterprises are allocating a growing share of their IT budgets to hardware, leaving less capital for software licenses, SaaS subscriptions, consulting services, and new deployments.
A broader slowdown in view
The concern for investors is that this reaches well beyond IBM. If enterprises keep reallocating capital from software toward AI infrastructure, software and consulting companies could face slower revenue growth over the coming quarters. Investors were already worried that AI could eventually reduce demand for traditional enterprise software and consulting.
Microsoft near a technical crossroads
Microsoft shares have fallen roughly 7% below their 200-day EMA and now sit nearly 30% below their all-time highs. After a rebound of around 10%, the RSI has recovered to 51, a neutral reading that leaves room for a move either way.
The stock is now down approximately 20% year-to-date, one of the weakest performers among Wall Street's mega-cap technology names despite a year-over-year improvement in its results. With a P/E ratio of around 23, the valuation is not particularly demanding relative to the Nasdaq average, yet investors remain wary of Microsoft's heavy AI-related capital spending, its exposure to a possibly slowing enterprise software cycle, and its large investment in OpenAI.
Source: XTB.com
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