IBM CEO Arvind Krishna told CNBC that only 2% of the company’s software could be replaced by applications built with artificial intelligence, pushing back on Wall Street’s fear that AI will disrupt its software business. The reassurance followed a weak second quarter that has left IBM shares down about 30% this year.
IBM’s chief executive is trying to convince Wall Street that artificial intelligence will not disrupt the company’s software business. Speaking on CNBC’s “Squawk on the Street” on Thursday, Krishna said just 2% of IBM’s software could be replaced by AI-built applications. The rest, he argued, helps clients prepare for AI rather than compete with it.
A weak quarter drags the stock down
Investors have soured on software names over the past couple of years, worried that models from Anthropic, OpenAI and others will disrupt their business. IBM shares have fallen about 30% this year. The iShares Expanded Tech-Software Sector ETF has dropped 17%.
The pressure is not new. In February, IBM stock sank 13% after Anthropic published a blog post on its Claude Code tool’s ability to modernize Cobol, the language that still runs many mainframes.
Mainframe spending dried up
The quarter’s trouble started in hardware. Krishna told analysts that IBM’s current z17 mainframe ran into challenges in the period.
Finance chief Jim Kavanaugh said some customers redirected money toward servers and storage as memory prices spike on AI chip demand. That shift matters because for every dollar of mainframe revenue, IBM picks up $3 in software. Z mainframe revenue dropped 42% in the quarter.
Transaction-processing software also fell 9%. That was a sudden reversal from the first quarter, when Z sales grew 48%.
What IBM expects next
Software still carries the company. During the June quarter, 45% of IBM’s revenue came from software, the segment with its strongest profit margins. IBM kept its guidance for a $1 billion increase in free cash flow in 2026.
Still, Kavanaugh now expects software revenue growth of 6% to 8% for the year, down from the double-digit pace he projected in January. Krishna expects the weakness to be temporary, saying about 75% of deals that slipped out of the quarter should return before year end.
The real exposure, he said, is aging products. He pointed to Starbucks, which spends about $2 million a year on IBM software and is retiring a Tririga lease-management tool that IBM plans to stop supporting in 2027. According to CNBC, Krishna placed that product in the vulnerable 2%: “I do think that software like that is subject to risk”.
Analysts at Jefferies were not fully convinced, holding off on full credit for the maintained guidance until more of the slipped business appears in results. They still recommend buying the stock.
Source: CNBC
Trading involves risk.
Risk Disclaimer
