In the latest installment of "bad news is good news," IBM's brutal preliminary quarterly results kicked the artificial-intelligence trade into high gear Tuesday.

IBM stock plunged 25% as the company said that some customers shifted spending to AI hardware in June, hurting sales of IBM's on-premise mainframe infrastructure. But that dynamic is good news for some of the most popular names in the tech sector as earnings season heats up.

The tech market didn't take long to brush the results aside. The iShares Semiconductor exchange-traded fund jumped 3.4%, and the iShares Expanded Tech-Software Sector ETF was up 1.4%.

The reaction from chip makers and other AI hardware suppliers was unsurprising after IBM CEO Arvind Krishna pointed to customers' changing capital-expenditure priorities.

"In the last few weeks of June, we saw clients shift their quarterly capex spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases," Krishna wrote in a letter to shareholders. "We did not anticipate the magnitude of the capex reprioritization."

Among server makers, Hewlett Packard Enterprise and Dell Technologies -- a Barron's stock pick -- rose 5.7% and 7.5%, respectively. The Roundhill Memory ETF, which tracks both memory and data-storage names, surged 6.8%.

IBM's commentary will reassure some investors ahead of earnings, said JoAnne Feeney, a portfolio manger and partner at Advisors Capital Management.

"There had been some doubt that was creeping in as to the duration of this AI spend," Feeney told Barron's. IBM's report helps show "shortages remain and that therefore there is a big rush to secure AI capacity."

It was a similar story for cybersecurity stocks after Krishna mentioned that clients were "distracted with rapidly-evolving, industrywide cybersecurity concerns." He was likely referring to the potential security risks posed by Anthropic's powerful Mythos model.

Palo Alto Networks rose 6.7% and CrowdStrike Holdings soared 11%. Cybersecurity names carry some of the highest multiples in software, but the IBM report, Feeney said, helps dispel lingering worries that AI may cannibalize legacy security platforms.

Beyond cybersecurity and AI, the story is more muddled -- as it has been for the better part of a year.

IBM's mainframe business is a combined hardware-and-software stack without many peers. It isn't much of a bellwether for the market, said RBC Capital Markets analyst Rishi Jaluria. That said, AI is sapping time and attention away from enterprise software vendors, and that trend may be intensifying rather than abating.

"For companies that have to focus on buying of hardware, are they rushing to buy hardware now with component price inflation, fearing that it could get worse?" Jaluria asked. "That's kind of what's happening here."

He expects to hear similar questions for software vendors in the coming weeks.

Executives who don't have a good answer may see their stocks get punished. As IBM shareholders found out on Tuesday, if a tech company can't show a massive influx of demand from AI, it needs to at least show customers aren't bringing their dollars elsewhere.

Write to Nate Wolf at nate.wolf@barrons.com

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July 14, 2026 14:45 ET (18:45 GMT)

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