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

IBM CEO Arvind Krishna acknowledged that his company's software sales fell short in the second quarter of its fiscal 2026, but he pointed to a rebound and expressed confidence in IBM's growth prospects.

The shortfall was attributed to a shift in customer spending from specific areas of IBM's software portfolio to AI-focused hardware components outside of the company's traditional offerings. Krishna noted that this shift resulted in a delay in closing several large deals, which accounted for most of the shortfall.

However, Krishna stated that about one-third of these delayed deals had since closed, and he expressed optimism about IBM's ability to adapt to changing client priorities and capitalize on opportunities in AI and software.

Krishna also highlighted IBM's recent acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of the company's high-margin subscription-based recurring software revenues. He noted that these operations have shown strong momentum, with record bookings at HashiCorp and Confluent, and significant growth in revenue at Red Hat.

IBM's CFO James Kavanaugh added that the company is adapting its go-to-market model to expand coverage across thousands of additional clients where IBM's portfolio is highly relevant. He emphasized that the vendor has a strong presence within the Fortune 1000 but sees opportunity beyond this group.