The Morning Download: IBM, ASML Reflect AI Divide

Good morning. It’s incredible, when you stop to think about it, that IBM’s mainframe computer business is still a thing in 2026. Its Z platform business remains substantial, though, especially in transaction-heavy industries such as banking and airlines. And the bigger the business, the harder the fall.

IBM shares fell more than 25% Tuesday after the company issued a rare profit warning, wiping out $69 billion in market capitalization, the Wall Street Journal reported. IBM CEO Arvind Krishna said in a letter to investors that clients shifted quarterly capital expenditures toward AI-related servers, storage and memory to secure supply.

Those infrastructure and components are in short supply, which is forcing price increases up and down the tech supply chain.

“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. This dynamic impacted client buying patterns,” Krishna wrote. “While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization. In addition, clients were distracted with rapidly-evolving, industry-wide cybersecurity concerns in the quarter.”

“These conditions require our teams to execute perfectly, and this quarter we faltered. We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” Krishna said.

The good news for IBM is that Krishna’s assessment of the company’s portfolio strength is reasonable. The bad news is that it is hard to see how pressures on the mainframe business will subside any time soon, given ongoing demand for AI-related infrastructure.

As if on cue, Dutch company ASML, which makes semiconductor-making machines, today raised its annual sales guidance to 43 to 45 billion euros, up from 36 to 40 billion euros, citing surging AI-driven demand for its equipment, the WSJ reports. ASML executives are also considering plans to increase output of its advanced EUV lithography machines by roughly 30% in 2027 and another 30% for 2028.

Tech leader takeaway. The guidance from IBM and ASML captures the relentless shift in capital expenditures into AI and away from almost everything else. If a company is on the winning side of that divide, enjoy it, at least for now. Everyone else will be judged on the basis of how well they manage their way through it. While the AI rotation isn’t necessarily a death sentence for those companies, it’s imposing an epic test on leadership, which will have to rise to the occasion with exceptional energy and creativity, as well as a willingness to make tough, high-stakes decisions.

• Apple is in talks with PrismML, a Caltech-affiliated startup backed by Khosla Ventures, which claims it can compress powerful AI models without compromising performance​. CEO Babak Hassibi characterized the discussions as very early, CNBC reports. The WSJ Leadership Institute profiled the startup in March.

• OpenAI is developing a screen-free, portable smart speaker as its first hardware product. The product, built by a team that includes  former Apple engineers and designers, including Jony Ive, aims to be a humanlike companion for the home, people familiar with the effort tell Bloomberg. Apple is suing OpenAI, alleging the AI company stole trade secrets as part of its effort to develop competing devices.

• The U.S. is giving the U.A.E expanded access to advanced AI chips after the Gulf state supported American military and diplomatic efforts against Iran. The Journal reports that the move is likely to draw scrutiny because it rewards a country whose national-security adviser became a top business partner of the Trump family last year.

• China's DeepSeek is preparing to file for a Shanghai IPO by year-end, targeting a listing as early as the second quarter of next year, while also seeking a new funding round at a valuation of $71 billion or more, the Journal reports.

• A group of current and former Meta Platforms employees are suing the company, alleging that AI systems it used to select workers for its May layoffs relied on metrics like productivity and AI-token use that disproportionately targeted people on medical or disability leave, violating discrimination laws, WSJ reports. 

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Follow Isabelle Bousquette on LinkedIn, Instagram, X, and TikTok for more behind the scenes on her tech and AI coverage, and lately, her contributions to the WSJ Leadership Institute's new Executive Resilience series, where she's profiling America's top execs about their fitness and wellness habits.

Follow Belle Lin on LinkedIn and X for her latest reporting on enterprise technology and AI.

Steven Rosenbush is chief of the enterprise technology bureau at the WSJ Leadership Institute. He also has a column. You can follow him on LinkedIn.

Tom Loftus is the editor of The Morning Download. He suggests following Isabelle, Belle and Steve on their various social channels. But if you insist, here's his LinkedIn.