IBM CEO Arvind Krishna looks on at a panel hosted by President Donald Trump in the Roosevelt Room at the White House in Washington on Dec. 10, 2025.
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IBM CEO Arvind Krishna said just 2% of his company’s software could be replaced with applications based on artificial intelligence models in a bid to reassure Wall Street after disappointing second-quarter results.
“The rest of our software really helps people prepare for AI, unlock data in real time, reduce the cost and complexity of managing it, and leverage the hybrid infrastructure that most of our customers use,” Krishna told CNBC’s “Squawk on the Street” on Thursday. “And since it would be what you would perhaps call infrastructure software rather than applications, I think it will be a tailwind for us.”
Wall Street has become skeptical of software stocks in recent years, fearful that AI will disrupt their business models as technology from Anthropic, OpenAI and others becomes more powerful. IBM shares are down about 30% this year, and that iShares Expanded Tech-Software Sector Exchange Traded Fund (IGV) has fallen by 17%.
In February, shares of IBM fell 13% after Anthropic published a blog post about the ability of its Claude Code tool to modernize code written in Cobol, which is often found on mainframes.
Krishna told analysts Wednesday after the company’s earnings report that IBM’s current-generation Z17 mainframe faced challenges in the quarter. Chief Financial Officer Jim Kavanaugh said some customers have chosen to spend money on other data center equipment such as servers and storage as storage prices soar due to AI chip requirements.
For every dollar of revenue IBM generates from its mainframe infrastructure, the company receives $3 in software. Just as IBM’s Z mainframe business saw revenue decline 42% in the quarter, its transaction processing software also fell 9%. It was a sudden change from the first quarter, when Z revenue increased 48% and transaction processing increased 2%.
In the June quarter, 45% of IBM’s revenue came from software, where profit margins are highest.
Krishna said Starbucks spends about $2 million a year on IBM software. He said the coffee machine eliminates the Tririga rental management software. IBM purchased Tririga in 2011 and plans to end support in 2027.
“That’s a big chunk of the 2% I was talking about, and I think software like that is at risk,” he said. “By the way, they were using 10-year-old software.”
While IBM stuck to its forecast for a $1 billion increase in free cash flow in 2026, Kavanaugh said Wednesday that he now expects software revenue to grow 6% to 8% for the year. In January, he said he was confident the growth rate would be in the double digits.
Krishna said Thursday that mainframe hardware capacity is growing, which impacts software.
“The software installed on it tends to lag behind the hardware capacity, and I think the software will catch up if we give it another year,” he said.
About 75% of the business lost in the second quarter is expected to come back to IBM before the end of the year, Krishna said.
“We would not give full credit to the maintained guidance until a greater portion of the declining activity is reflected in reported results,” Jefferies analysts wrote in a note to clients Thursday. They recommend buying the stock.
REGARD: IBM CEO: Prices for many infrastructure components have risen sharply
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