IBM Shares Plummet 11% as Anthropic's AI Threatens COBOL Legacy, Exacerbating Existing Growth Concerns

What happened

IBM's stock tanked 11% on news that Anthropic's advancements in AI programming languages pose a direct threat to its COBOL-based business, a key part of its legacy infrastructure revenue. This sell-off amplifies investor anxieties detailed in recent SEC filings, where IBM's critical Hybrid Cloud (Red Hat) growth slowed to 8% constant-currency in Q4'25 and AI monetization remains heavily reliant on low-margin consulting bookings. The DeepValue report underscores that IBM is already struggling with high net debt of $53.5 billion, acquisition-driven dilution from deals like Confluent, and reduced transparency after discontinuing its generative AI KPI. Market sentiment, which had priced IBM as a defensive AI consolidator, is now forced to confront the vulnerability of its legacy software moat amid rapid technological disruption. Consequently, the sharp decline reflects a broader reassessment of IBM's transformation narrative, which faces both cyclical pressures and structural threats from agile competitors.

Implication

The immediate price drop signals eroding market confidence in IBM's ability to defend its core legacy software businesses, such as COBOL, against AI-driven obsolescence, which could accelerate customer migration to modern platforms. Long-term, this threatens IBM's high-margin software segment, compounding the report's findings of slowing Red Hat growth and declining consulting signings, thereby undermining the software-led compounding thesis. Combined with capital allocation strains from debt-funded M&A and guided dilution, IBM's financial flexibility may deteriorate if legacy revenue declines faster than anticipated, increasing balance-sheet risk. Investors must now monitor not only Red Hat's performance but also IBM's response to competitive incursions in entrenched markets, as failure to adapt could lead to sustained multiple compression. Ultimately, this event heightens the asymmetric risk profile, where downside scenarios become more probable without clear evidence of Red Hat re-acceleration or successful AI product transitions.

Thesis delta

The news reinforces the bear case from the DeepValue report, introducing a new, tangible risk to IBM's legacy software revenue that was previously underappreciated in market narratives. It shifts the thesis slightly towards increased downside probability, as COBOL threats add to execution risks like Red Hat stagnation and AI conversion challenges, but the core POTENTIAL SELL rating remains unchanged due to pre-existing valuation and growth concerns.