IBM Stock Slides 9% After Confirming $6.4B HashiCorp Buyout

International Business Machines Corp. (NYSE: IBM ) encountered a stormy start to the trading day as its shares tumbled more than 8% in premarket trading on Thursday. The computing and consultancy giant grappled with challenges in its consulting business, fueled by enterprise spending constraints amid an uncertain economic backdrop and rising interest rates.

The tepid performance in IBM's consulting segment, marked by weaker demand for smaller discretionary projects, sent shockwaves through the market. Despite a 5.5% growth in its software business and a strategic $6.4 billion acquisition of cloud software company HashiCorp (NYSE: HCP ), IBM fell short of Wall Street expectations with total revenue of $14.46 billion, slightly below estimates.

Analysts at J.P. Morgan highlighted the unexpected deterioration in IBM's consulting division, while acknowledging the potential for a turnaround fueled by the company's backlog. However, the magnitude of IBM's consulting slowdown overshadowed the software acceleration, prompting concerns among investors.

The confirmation of IBM's acquisition of HashiCorp for $6.4 billion added complexity to the narrative, with the deal expected to close by the end of 2024. While IBM anticipates the acquisition to be accretive to adjusted EBITDA within the first 12 months post-closing, investors remained cautious amidst uncertainties surrounding regulatory approval and integration challenges.

IBM's CFO, James Kavanaugh, cited macroeconomic uncertainty as a key factor driving prudent customer discretionary spending, echoing concerns about tightening budgets amid economic headwinds.

Despite posting adjusted earnings of $1.68 per share for the first quarter, beating analysts' forecasts, IBM's revenue miss and consulting woes cast a shadow over its financial performance. The company's stock price plummeted to $168.51 in after-hours trading, erasing some of the gains it had accrued over the past year.

Investors closely monitored IBM's chart patterns, with the $165 level emerging as a critical support area amidst the selling pressure. The stock's trajectory, characterized by a breakout from a multi-month rising wedge followed by a retreat to its lower trendline, underscored the volatility and uncertainty surrounding IBM's prospects.

The challenges posed by enterprise spending constraints and executing its growth strategy amidst macroeconomic headwinds, investor sentiment remains pivotal in determining the company's trajectory in the coming quarters.