IBM shares plunged over 20% on Tuesday and the company led a massive market rout after forecasting second-quarter revenue below estimates and signaling that businesses were favoring spending on data center infrastructure over software, the starkest sign yet of AI's growing toll on the sector.
Shares of Big Blue slumped 20% in premarket trading, and was down as much as 23% later during the day, dragging other software stocks and Dow futures lower.
The iShares Expanded Tech-Software Sector ETF was last down more than 4%.
Software investors have long been on edge over fears that AI tools capable of automating routine work could pose an existential threat to the industry.
Tuesday's announcement showed that even the boom in spending on servers, chips and networking gear for AI was eating into software budgets.
