IBM earnings disappoint, CEO Arvind Krishna reveals how much software AI can replace

IBM's latest earnings report has made investors concerned about the impact of AI on the company. But IBM CEO Arvind Krishna insists that only a part of its software might be replaced by AI, the rest, he says, could actually help people get AI ready.IBM CEO Arvind Krishna accepted that the company had failed to adapt. (Photo: Reuters)IBM is facing a tough time, with the company’s stock seeing the biggest dip in decades with over $70 billion lost in market cap after CEO Arvind Krishna warned investors that the company would miss expectations for its latest earnings report. This has made investors worry about the future of the tech giant in a future with more AI tools. But Krishna believes that AI will not disrupt its business. Rather, he claims that it may act as a tailwind for the company.At a time when there are fears that AI tools like Claude Cowork might mark the end of software-as-a-service (SaaS) companies, Krishna says that only about 2 per cent of IBM’s software can actually be replaced by AI tools. “The rest of our software really helps people get ready for AI, unlocking data in real time, reducing the cost and complexity of managing it, going across the hybrid infrastructure, which most of our clients are using,” he told CNBC.Krishna claimed that AI could act as a tailwind that helps IBM grow, similar to how a tailwind makes an aircraft go faster. He explained, “And because it would be what you would call maybe infrastructure software, not applications, I believe it’ll be a tailwind for us.”In its latest earnings report, IBM recorded $17.2 billion in revenue, $9.9 billion in gross profit, but the figures fell short of Wall Street expectations. To give you some context on why AI’s impact on SaaS has IBM investors worried, for every dollar IBM earns from its mainframe business, it earns three dollars from software. That is, if AI was to disrupt the company’s software, it may lose out big when it comes to revenue. Though Krishna believes that IBM can actually use AI as an opportunity to grow.Some IBM software at risk of being replaced by AIThat is not to say that IBM will not be impacted by AI at all. Krishna cited an example of IBM’s Tririga lease management software used by Starbucks for $2 million per year. He explained, “That is a big component of that 2 per cent I talked about, and I do think that software like that is subject to risk.” Krishna and IBM’s finance chief Jim Kavanaugh said that weakness reflected delayed spending rather than lost demand. The company argued that its customers were choosing to spend first on servers, storage, memory and other data-centre equipment as AI-related costs rose.IBM now expects software revenue growth of 6 per cent to 8 per cent this year, down from the double-digit growth rate it had predicted back in January.Arvind Krishna’s letter to investors last week flagged weak revenue in the company’s infrastructure business and pressure on margins, and the stock fell 25 per cent which the company described as its biggest single-day decline ever. IBM shares are down about 30 per cent this year.But according to the IBM CEO, the company is finally closing in on deals it missed in its last quarter.“The majority of what didn’t happen in the second quarter was large capex deals at large clients,” he said. Krishna added that about a third of those deals had already closed in the first three weeks of the new quarter, and said that gave IBM “an indication, not yet full evidence, but a good indication that this was deferral and not destruction.”Krishna says that about 75 per cent of the deals that slipped from the second quarter should return before the end of the year. He also said, “We see no evidence of clients moving off the mainframe.”The latest concerns came against a broader backdrop of scepticism towards software stocks as investors question whether stronger AI tools from companies such as Anthropic and OpenAI could disrupt existing business models. The iShares Expanded Tech-Software Sector Exchange-Traded Fund has fallen 17 per cent. In February, IBM shares fell 13 per cent after Anthropic published a post on Claude Code’s ability to modernise code written in Cobol, which is often used on mainframes.- EndsPublished By: Armaan AgarwalPublished On: Jul 24, 2026 08:36 IST