Shares of Indian IT companies, including TCS, Infosys, Wipro, HCLTech, Tech Mahindra, Persistent Systems and Coforge, could come under selling pressure on Wednesday after their US peer IBM posted its steepest-ever single-day decline, plunging 25% following a weaker-than-expected preliminary quarterly update.
The fallout was immediately visible across US-listed Indian IT stocks. Infosys ADRs fell 4%, while Wipro ADRs declined 3%. Other software and IT services companies, including Accenture, Salesforce, Microsoft, Cognizant and Autodesk, also slipped 1.5% to 3%.
Why did IBM shares fall?
The company reported preliminary second quarter revenue of $17.2 billion, missing analysts' expectations of $17.9 billion. Adjusted earnings per share also came in below estimates at $2.93, compared with the Street's forecast of $3.02.
Also read: IBM warns AI boom is squeezing software budgets, triggers sector rout
IBM CEO Arvind Krishna said the miss was largely driven by weakness in the company's software and infrastructure businesses as customers shifted spending toward hardware, including memory chips. He also acknowledged that IBM was slow to respond to changing customer priorities, causing several large deals to be delayed beyond expected timelines.
The sharp selloff wiped out nearly $70 billion in IBM's market value in a single trading session.
Testing times for IT companies
The weak market reaction reflects investor concerns over Indian IT companies' heavy reliance on discretionary technology spending by global clients, particularly in the US. Any indication that enterprises are delaying software projects or diverting budgets toward AI hardware raises fresh concerns over the growth prospects of software services exporters.
The development comes at a time when the Indian IT sector is already grappling with multiple headwinds. Stocks have remained under pressure this year amid weak discretionary spending, slower deal closures and growing concerns that AI-driven automation could reduce demand for traditional IT services.
Brokerages had earlier projected a muted June quarter for large Indian IT companies, with revenue growth expected to remain subdued as clients continue to scrutinise technology spending. Analysts had also warned that FY27 growth guidance could come under pressure if demand failed to improve across key verticals such as banking, retail, manufacturing and communications.
IBM's update has reinforced those concerns. The key takeaway is not just weaker software demand, but a broader shift in enterprise technology spending. Companies appear to be prioritising investments in AI infrastructure—including chips, servers, storage and data centre capacity—before allocating budgets to software and IT services. That shift could delay new project spending even as enterprises continue to invest aggressively in AI.
Read more: Why IBM shares crashed 26%: CEO Arvind Krishna highlights customer spending shifts towards AI
In his letter to investors, Krishna said customers redirected their quarterly capital expenditure toward servers, storage and memory in the final weeks of June as they rushed to secure infrastructure ahead of anticipated price increases. He added that while IBM had expected some supply chain disruption, it underestimated the scale of the shift in customer spending.
While chipmakers, server manufacturers and memory suppliers continue to benefit from the AI infrastructure boom, software companies are facing tougher spending decisions from enterprise customers.
For Indian IT services companies, investors will closely track deal wins, large contract ramp-ups, margins and management commentary on discretionary spending. Given the sector's significant exposure to the US market and its consulting-led business model, any shift in enterprise technology budgets is likely to weigh on sentiment.
