What Happened?
A number of stocks fell in the afternoon session after IBM issued a second-quarter revenue warning, suggesting that the enterprise shift toward AI hardware may be constricting demand for large-scale consulting projects.
IT services & consulting peers traded in sympathy with the decline IBM pre-announced adjusted earnings of $2.93 per share on $17.2 billion in revenue, missing Wall Street estimates of $3.01 and $17.86 billion, respectively.
In a letter to investors, CEO Arvind Krishna revealed that the shortfall was driven by a sudden reprioritization of enterprise budgets in late June.
Clients shifted their capital expenditure toward servers, storage, and memory chips to secure supply-constrained hardware ahead of expected price increases, causing "numerous large deals" to stall.
When chief information officers redirect capital to hoard memory chips and servers, it suggests they are delaying the massive software deployments that generate billable integration work. Because IBM often competes with these global systems integrators for enterprise contracts, investors are treating its delayed deal closures as a likely bellwether for the broader group.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- IT Services & Consulting company Kyndryl (NYSE: KD) fell 6.9%. Is now the time to buy Kyndryl? Access our full analysis report here, it’s free.
- IT Services & Consulting company Everforth (NYSE: EFOR) fell 5.4%. Is now the time to buy Everforth? Access our full analysis report here, it’s free.
Zooming In On Kyndryl (KD)
Kyndryl’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 3.2% on the news that President Trump declared the Iran ceasefire "over" and threatened fresh strikes, sending oil prices soaring and triggering a broad risk-off move.
Business services (staffing, consulting, payment processing, and outsourcing firms) are a bet on the pace of economic activity, so they tend to fall when growth expectations wobble.
A crude spike (Brent +7.5% to $79.65) revives inflation fears, and the accompanying jump in global bond yields raises the discount rate applied to these companies' future cash flows.
Also, corporate clients typically freeze discretionary spending on consultants and temporary labor when geopolitical uncertainty clouds the outlook. With Fed minutes due and officials having signaled possible further rate hikes, the sector's dual sensitivity to both slower activity and higher rates left it firmly in the red.
Kyndryl is down 54% since the beginning of the year, and at $11.74 per share, it is trading 70.3% below its 52-week high of $39.57 from July 2025. Investors who bought $1,000 worth of Kyndryl’s shares at the IPO in October 2021 would now be looking at an investment worth $287.98.
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