European software stocks fell sharply after sector bellwether International Business Machines said that its customers were reallocating resources away from software.

A basket of European software stocks was down 3.8% in afternoon European trade, following a sharp decline immediately after IBM warned that it failed to close several large deals. The fall deepens heavy losses suffered by the sector so far this year, with the European software gauge down by more than 26%.

Shares in IBM's European peers fell steeply. Software giant SAP--the second most valuable company in Germany--lost 5.6% to trade close to a 30-month low.

Paris-listed Capgemini fell 5.1%, while Dassault Systemes dropped 5.1%. London's Sage and Relx dropped 3.9% and 3.5%, respectively.

IBM shares were down close to 23% in premarket U.S. trade. In a letter to investors, Chief Executive Arvind Krishna said that clients had shifted their capital expenditure toward hardware like servers, storage and memory as they raced to lock in infrastructure supply ahead of price increases.

"While we anticipated some supply chain related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization," Krishna said.

Tuesday's sharp market reaction to IBM's statement is the latest episode in a volatile year so far for software stocks. The sector sold off dramatically in February, as investors grew worried that artificial intelligence agents posed an existential threat to software companies' business models.

Write to Joe Stonor at josephmichael.stonor@wsj.com

(END) Dow Jones Newswires

July 14, 2026 08:40 ET (12:40 GMT)

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