# Why IBM Suffered Its Worst Stock Crash—and What It Says About Market Bubbles The dangerous relationship between the AI boom and bank profits. - **Source:** [Fortune | FORTUNE](https://brifing.si/source/769282ef-327a-4454-909a-3c7936216004) - **Published:** 2026-07-15 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/9a51442d-060f-4974-aa51-610a1ef67fcc ## IBM's Historic Crash IBM experienced its largest single-day stock crash in its 115-year history. Shares plummeted 25%, wiping out roughly $40 billion in market value. This collapse highlighted the dangerous relationship between the AI boom and bank profits. ## Profit and Valuation Bubbles Economist Steve Hanke identified two types of bubbles in the markets: a classic valuation bubble where prices outpace earnings, and a more dangerous profit bubble where earnings themselves are inflated and unsustainable. ## IBM's Profit Warning IBM's second-quarter revenue missed expectations by 3.7%. Despite this modest miss, the market reacted harshly. CEO Arvind Krishna issued a candid mea culpa, acknowledging the underperformance. ## Warning to the Tech Sector IBM's profit warning was seen as an alarm for the tech sector. Financial Times editor Richard Waters described it as a warning to the IT sector, supporting the theory that AI will displace traditional software. ## The Danger of Profit Bubbles Profit bubbles are rarer and more dangerous than valuation bubbles. They occur when earnings are inflated, leading to market mispricing. IBM's crash suggests the unwinding of such a bubble. ## Analysts' Reactions Wall Street analysts cut profit estimates after IBM's crash, but these adjustments came after the stock had already fallen. This highlights the difficulty in predicting when profit bubbles will burst. ## The Role of Banks Steve Hanke pointed out that banks' money creation mechanism fuels market bubbles. JPMorgan's record profits reveal this mechanism, providing a critical clue to understanding market dynamics. ## Sources covering this story - https://fortune.com/2026/07/15/why-did-ibm-stock-crash-earnings-bubble-ai-spending/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._