IBM blamed clients spending more on AI hardware, like memory and servers, for its poor results. Connie Zhou for IBM

IBM stock tanked in premarket trading on Tuesday after worse-than-expected Q2 results.

The company's stock was set to open down almost 23%.

"This quarter we faltered," IBM CEO Arvind Krishna said in a letter to investors.

IBM shares tanked in premarket trading on Tuesday after the tech giant reported worse-than-expected results and said customers were cutting back spending on its AI infrastructure and software products.

The company's stock was set to open down almost 23% as of around 7:45 a.m. ET, an hour and a half before the market open. Having closed at $290 per share on Monday, the stock was set to open at $224 on Tuesday.

The precipitous drop in IBM's stock came after it reported a second-quarter "shortfall" in the performance of its software and infrastructure division, linked to the rollout of its new z17 mainframes, which are designed to process AI workloads.

"This quarter we faltered," IBM CEO Arvind Krishna said in a letter to investors released Tuesday. "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 said that a major factor in the lower-than-expected performance was clients cutting spending on IBM products and reprioritizing their capex spend on "servers, storage, and memory purchases" ahead of "expected price increases."

Behind this change in spending patterns is a global shortage of memory chips that has driven up hardware prices since late 2025.

Memory giants like Samsung, SK Hynix , and Micron have shifted production toward the specialized chips that power AI data centers, and that capacity is effectively sold out for 2026 under long-term contracts. The result is a squeeze on the everyday memory used by servers, PCs, and phones.

Micron's CEO has said he expects "tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints."

The prospect of further price rises appears to have prompted IBM's clients to prioritize hardware procurement over the software and mainframe purchases the company had anticipated.

Krishna said in his letter to investors that while IBM had expected some changes in clients' spending patterns, the company "did not anticipate the magnitude of the capex reprioritization."

IBM reported revenues of $17.2 billion across the company in the second quarter, up 1%, but behind analyst expectations. Revenues in the infrastructure division were down 7%.