IBM (IBM) just gave investors a reason to hit the sell button. On Tuesday, the tech giant released preliminary second-quarter results that came in below expectations, and the market responded by knocking nearly 23% off the stock price in premarket trading.

The culprit? A shift in enterprise spending that caught IBM off guard. Customers, worried about supply constraints and potential price increases, redirected capital toward servers, storage, and memory products late in the quarter. That left IBM's mainframe business — specifically its Z platform and related software — in the lurch, with several large deals slipping past their expected closing dates.

IBM now expects Q2 revenue of $17.2 billion, up just 1% from a year ago and well short of the Wall Street consensus of $17.86 billion. Software revenue grew 5%, consulting was flat (or up 1% on a constant currency basis), and infrastructure revenue fell 7%.

On the earnings side, IBM projects GAAP earnings per share of $2.27, down 2% year over year. Operating (non-GAAP) EPS is expected at $2.93, up 5% but below the $3.02 analysts were looking for. Gross margins also tightened: GAAP gross margin narrowed 100 basis points to 57.7%, while the non-GAAP operating margin slipped 70 basis points to 59.4%.

CEO Arvind Krishna was candid about the miss. He said IBM's teams "did not adapt and move quickly enough" to the changing market conditions. He also pointed to rapidly evolving cybersecurity concerns as another factor that disrupted customer purchasing decisions during the quarter.

But it wasn't all bad news. Red Hat revenue growth accelerated to 11%, recent acquisitions like HashiCorp and Confluent performed well, and distributed infrastructure revenue jumped 37% — its best showing ever. Consulting signings also continued to grow, fueled by demand for generative AI.

Looking ahead, IBM is sticking to its long-term playbook. The company highlighted the recent launch of its Lightwell AI security platform and reiterated plans to invest more than $10 billion in quantum computing over the next five years. It also said it remains on track to deliver a large-scale fault-tolerant quantum computer by 2029.

For the first half of the year, IBM generated $7.8 billion in operating cash flow and $4.8 billion in free cash flow. The company will report full Q2 results and discuss its outlook during its scheduled earnings call on July 22.

As of premarket trading Tuesday, IBM shares were down 22.56% at $224.76.