IBM Sees Rebound After Software Shortfall Amid Shift to AI-Focused Hardware

IBM's CEO Arvind Krishna acknowledged that the company experienced a 'software shortfall' in its second quarter of fiscal 2026, but emphasized that it was due to execution issues rather than any fundamental problems with the business. The shortfall was attributed to a shift in customer spending from software to AI-focused hardware components outside IBM's traditional offerings.

Krishna explained that this shift was driven by customers prioritizing other capex investments and purchasing servers, storage, and memory to secure supply-constrained infrastructure ahead of expected price increases. As a result, the company failed to close a double-digit number of large deals on time, accounting for the majority of the shortfall.

However, Krishna noted that about one-third of these shifted deals had since closed, indicating that it was a deferral rather than destruction of business. He expressed confidence in IBM's ability to adapt and deliver greater business value to clients around its innovation and economic value alignment with client priorities.