NEW YORK, April 23, 2026 – International Business Machines Corporation (IBM) saw its shares slide approximately 9.5% in early trading Thursday, even after the company reported first-quarter earnings that surpassed analyst expectations. The decline underscores a growing unease among investors that the rapid advancement of artificial intelligence tools could disrupt the company's core software and consulting operations.
The selloff extended beyond IBM, dragging down the broader software sector. ServiceNow Inc. (NOW) plummeted 17.5% after its quarterly results, while the iShares Expanded Tech-Software ETF (IGV) shed 5.6%. This starkly contrasted with the semiconductor space, where the iShares Semiconductor ETF (SOXX) gained 2.1% following a strong forecast from Texas Instruments (TXN), which rose 15.9%.
Earnings Details and Market Reaction
For the quarter ended March 31, IBM reported revenue of $15.9 billion, a 9% increase year-over-year. Adjusted earnings per share came in at $1.91, beating the consensus estimate of $1.81. Software revenue grew 11% to $7.1 billion, consulting revenue rose 4% to $5.3 billion, and infrastructure revenue climbed 15% to $3.3 billion. However, the pace of growth slowed compared to the previous quarter's 12.2% revenue increase, and the company maintained its full-year guidance for revenue growth above 5% at constant currency and approximately $1 billion in additional free cash flow.
Analysts pointed to the deceleration as a key concern. "The slowing growth trajectory, particularly in software, is giving investors pause," said Brooks Idlet of CFRA Research. "The unchanged guidance didn't help either."
AI Fears and Competitive Pressures
The anxiety surrounding AI's impact on IBM's business was amplified by recent developments. In February, shares plunged 13.2% in a single day—the largest one-day drop since 2000—after Anthropic announced its Claude Code tool could modernize COBOL, the aging programming language still critical to IBM's mainframe business. This raised fears that AI could automate tasks traditionally handled by large consulting teams.
IBM executives pushed back against these concerns. CFO James Kavanaugh highlighted the company's Watsonx Code Assistant, noting that customers are increasing mainframe usage and described generative AI as an "accelerator" for modernization. CEO Arvind Krishna reiterated that AI remains a "tailwind" for IBM's business.
ServiceNow and Broader Software Weakness
ServiceNow reported first-quarter results that topped targets and raised its full-year subscription revenue forecast, with CEO Bill McDermott touting AI growth "far exceeding" expectations. The number of customers spending at least $1 million annually on its Now Assist product more than doubled, up over 130%. However, the company flagged delayed deals in the Middle East, which trimmed about three-quarters of a percentage point from quarterly subscription growth, leading to the sharp stock decline.
The weakness spread to other software peers. Salesforce (CRM) fell roughly 8.6%, Adobe (ADBE) dropped 7.8%, and Microsoft (MSFT) shed 3.2% in early trading. The software ETF has now declined approximately 16% year-to-date, while the semiconductor ETF has surged over 43%.
Market Divide and Outlook
The divergent performance between software and semiconductor stocks highlights a growing market divide. Investors are rewarding companies that build AI infrastructure—such as chipmakers and data center hardware providers—while penalizing those whose businesses could be disrupted by AI. Kiran Ganesh, a strategist at UBS, described technology markets as heading into a "bigger range of outcomes."
Despite the headwinds, IBM's infrastructure segment continues to post solid gains, and both IBM and ServiceNow executives maintain that AI demand is accelerating. However, a weak consulting environment and the spread of AI agents into basic software and modernization tasks could weigh further on valuations. The coming weeks will be critical as more enterprise software companies report earnings, providing further insight into the AI-driven transformation of the sector.
