Japanese IT Stocks Tumble After IBM Warns AI Spending Is Squeezing Software Budgets

Japanese information technology stocks fell sharply on Wednesday, following an overnight warning from IBM that surging corporate investment in artificial intelligence is crowding out spending on traditional enterprise software and services.

Tokyo Shares Follow IBM Lower

The sell-off in Tokyo hit several major IT services and consulting firms, which underperformed the broader market. The declines followed a 25% plunge in IBM's shares after the U.S. technology giant issued a weak revenue outlook.

Notable decliners in Wednesday's trading included:

• BayCurrent Consulting (TYO:6532), which dropped nearly 7%
• Fujitsu (TYO:6702), which slipped 5.5%
• NEC Corp (TYO:6701), which fell 5%
• Nomura Research Institute (TYO:4307), which declined 5%

AI Hardware Crowds Out Software

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The market reaction was triggered by IBM's guidance for its second-quarter revenue, which it expects to be about $17.2 billion—below analyst estimates and marking its weakest sales growth in over a year.

IBM management warned that corporate customers are aggressively reallocating their technology budgets. Companies are prioritizing spending on supply-constrained AI infrastructure, such as servers, storage, and memory, while delaying purchases of software.

Implications for Tech Spending

The warning from IBM has heightened investor concerns about the second-order effects of the AI boom. While demand for AI-related hardware and chips has soared, the finite nature of corporate IT budgets means this spending may come at the expense of other areas.

The development suggests that enterprise software vendors and IT services companies could face near-term pressure as potential clients divert funds to build out their foundational AI capabilities.