IBM Admits Execution Shortfall, Sees Rebound with AI-Focused Strategy

IBM's CEO Arvind Krishna admitted that the company fell short in its execution during the second quarter of fiscal 2026, but he expressed confidence in the business's ability to grow and drive shareholder value.

The shortfall was attributed to a sudden shift in customer spending from IBM's traditional software portfolio to AI-focused hardware components outside of their offerings. Krishna said that this shift was not a destruction, but rather a deferral of deals, with about one-third of the affected transactions already closed since the end of the quarter.

CFO James Kavanaugh explained that clients prioritized capex investments in servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This led to IBM missing out on a double-digit number of large deals during the quarter, which accounted for the majority of the shortfall.

Krishna pointed to the company's plans to increase the use of AI to help scale software development, bolster sales and marketing efforts, and optimize its supply chain as a way to adapt to changing client priorities. He also highlighted IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of the company's high-margin subscription-based recurring software revenues.