IBM CEO Arvind Krishna told CNBC that only 2% of the company's software could be replaced by applications built by artificial intelligence models. The claim lands after a quarter in which Z mainframe revenue fell 42% and the stock recorded the worst single trading day in its 115-year history.
Krishna put a number on IBM's exposure to AI: only 2% of IBM's software could be replaced by applications that artificial intelligence models build, he told CNBC on Thursday, July 23. Everything else, he argued, helps clients get ready for AI rather than compete against it.
What 2% means for IBM software revenue
Software is IBM's profit engine. It brought in $7.76 billion in the second quarter, up 5%, and makes up roughly 45% of the company's revenue, CNBC reported. Two percent of that quarterly business works out to about $155 million a quarter, or roughly $620 million a year.
Most of that revenue is infrastructure software — the layer managing data, security, and hybrid cloud plumbing that AI tools need to run. Applications are the exposed category: IBM's Tririga lease management product, acquired in 2011, earns about $2 million a year from Starbucks, which is phasing it out before a 2027 support cutoff.
Mainframe revenue fell 42% in the second quarter
But the quarter that prompted Krishna's apologies turned on hardware, not AI displacement. IBM's Z mainframe revenue fell 42% and the transaction processing software tied to those machines dropped 9%, according to CNBC, one quarter after Z revenue had grown 48%.
Krishna wrote in IBM's July 14 letter to investors that clients spent late June redirecting capital toward servers, storage, and memory to lock in supply ahead of price increases. That sequence hurts twice, because IBM collects about $3 of software revenue for every dollar of mainframe hardware it sells.
Wall Street trimmed IBM price targets anyway
Morgan Stanley analyst Erik Woodring cut his target to $190 from $293 on July 23 while holding an equal weight rating, according to GuruFocus. Stifel's David Grossman moved to $235 from $290 and kept a buy rating, telling clients the stock will likely stay stuck in a narrow range, with more room to fall than to rise.
Guidance came down with the targets. IBM now expects full-year constant currency revenue growth of 4% to 5%, trimmed from more than 5%. The stock is down about 30% in 2026 through Wednesday's close, against a roughly 10% gain for the S&P 500 over the same stretch, CNBC reported.
Shares rose 4.01% to $214.94 by midday Friday, July 24, up $8.30 from Thursday's close of $206.65, yet the stock remains down more than 18% over the past month and sits near its 52-week low of $199.19.
The number to watch on the October earnings call is Z mainframe revenue, where Krishna's claim that software should catch back up within a year would show first.
Source: TheStreet
Trading involves risk.
Risk Disclaimer
