IBM lost over $100 billion in just 42 days. Should Indian IT investors worry?

IBM's $100 billion market value erosion in 42 days has jolted technology stocks and raised questions for Indian IT. The sell-off reflects a wider shift towards AI infrastructure spending, though recent Indian IT earnings remain steadier.

In Short

• IBM shares plunged 25% on July 14, biggest drop since 1968
• IBM's revenue miss due to shift towards AI infrastructure spending
• Indian IT firms differ, relying more on services than software sales

IBM's stunning stock market collapse has sent shockwaves through global technology stocks.

Just 42 days ago, on June 2, IBM shares were up 13% for the year and trading at an all-time high. Fast forward to July 14, and the company has suffered its biggest single-day stock market crash since 1968, with shares plunging 25%.

The fall has erased more than $100 billion in market value in just six weeks and has once again raised concerns about the future of enterprise technology spending.

The big question now is whether the warning signs from IBM could spill over to India's IT giants such as TCS, Infosys, Wipro, HCLTech and Tech Mahindra.

The short answer is yes, but only to an extent.

WHY DID IBM CRASH?

IBM shocked investors after warning that its second-quarter revenue and earnings would fall short of expectations.

The company admitted it had failed to keep pace with a rapid shift in how businesses are spending money.

Instead of buying software or signing new technology contracts, many companies are rushing to spend on AI infrastructure such as servers, storage systems, networking equipment and memory chips before prices rise further.

IBM CEO Arvind Krishna also acknowledged that several large deals expected to close during the quarter did not materialise, adding to the disappointment.

The warning was enough to trigger the biggest one-day fall in IBM shares in nearly 58 years.

WHAT DOES THIS MEAN FOR INDIAN IT?

IBM's results have undoubtedly hurt sentiment across the global technology sector.

Infosys and Wipro ADRs fell sharply in the US after IBM's outlook, while software companies including Salesforce, Adobe, Oracle and Accenture also came under pressure.

However, analysts believe investors should not draw a direct comparison between IBM and Indian IT companies.

The biggest reason is that IBM's weakness came mainly from its traditional software and infrastructure businesses, while its consulting division remained relatively stable.

Indian IT companies generate a much larger share of their revenue from IT services, consulting, cloud transformation and digital engineering rather than selling enterprise software.

That means the pressure IBM is facing is not an exact reflection of the challenges facing Indian IT.

THERE IS STILL ONE BIG RISK

That said, IBM's commentary has highlighted a trend that investors cannot ignore.

If companies continue diverting technology budgets towards AI infrastructure, spending on software implementation and IT services could also soften over time.

Traditional software budgets are already under pressure. The concern now is whether consulting budgets could eventually follow if enterprises continue prioritising hardware investments over discretionary technology projects.

This is the biggest risk that investors will be watching over the coming quarters.

Q1 RESULTS DON'T SHOW A COLLAPSE YET

So far, earnings from Indian IT companies have not pointed to a broad slowdown.

TCS reported revenue of Rs 72,275 crore in the April-June quarter, up 13.9% year-on-year, while net profit rose to Rs 13,349 crore.

HCLTech posted a 20.3% rise in profit, reported record net-new bookings of $2.4 billion and maintained its full-year guidance. Its advanced AI business also grew more than 62% year-on-year.

LTIMindtree reported 18% revenue growth and a 17% increase in net profit, while L&T Technology Services posted double-digit growth in both revenue and earnings.

These results suggest that demand for AI, cloud migration, engineering services and digital transformation remains healthy despite growing caution around technology spending.

A LOT OF BAD NEWS IS ALREADY PRICED IN

Indian IT has already gone through a painful correction over the past two years.

The combined market value of TCS, Infosys, Wipro, HCLTech and Tech Mahindra has fallen from nearly Rs 33.71 lakh crore in August 2024 to around Rs 18.15 lakh crore now—a decline of roughly 46%, or more than Rs 15 lakh crore.

That means valuations are no longer stretched.

Market expert Kranthi Bathini believes IBM's sharp correction could weigh on Indian IT stocks in the near term as investors react to global cues. However, he believes the downside may remain limited because Indian IT companies are already trading close to their long-term average valuations.

He also noted that sentiment over the coming weeks is likely to depend not just on technology spending but also on broader macroeconomic factors, including crude oil prices and global risk appetite.

THE BIGGER PICTURE

IBM's earnings do not necessarily indicate that Indian IT is heading into a similar slowdown.

Instead, they highlight a major shift taking place across the global technology industry.

Companies are spending aggressively on AI infrastructure first and delaying some software and technology projects. That has created short-term pain for companies like IBM, whose traditional software business has come under pressure.

For Indian IT firms, the picture remains more balanced.

Consulting demand has held up better than traditional software spending, AI-led transformation projects continue to grow and recent quarterly results remain healthy. However, if clients continue to prioritise AI infrastructure over broader technology spending for a prolonged period, Indian IT companies could also face slower deal flows in the coming quarters.

For now, IBM's historic crash is more of a warning signal than a verdict on Indian IT. Investors are likely to stay cautious, but the sector's latest earnings suggest India's largest IT companies are still navigating the AI transition better than many of their global peers.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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