IBM Sees Shift in Customer Spending Towards AI, Expects Rebound
IBM's CEO Arvind Krishna acknowledged that the company experienced a 'short fall in execution' during its second quarter of fiscal 2026, but expressed confidence in the business's future. The shortfall was attributed to a sudden shift in customer spending from IBM's traditional software portfolio to AI-focused hardware components outside of the company's core offerings.
Krishna explained that this shift led to a delay in closing large deals, which accounted for the majority of the shortfall. He stated that about one-third of these delayed deals had since closed, and expressed optimism that the remaining deals would follow suit within six months.
IBM's CFO James Kavanaugh added that the company has witnessed a 'shift in client spending priorities' towards supply chain-constrained hardware and cybersecurity-focused software. He highlighted IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which have contributed to the company's high-margin subscription-based recurring software revenues.
Krishna also emphasized the importance of AI in driving growth and innovation for IBM, stating that the technology will be used to scale software development, bolster sales and marketing efforts, and optimize the supply chain. He added that the company is accelerating changes to its go-to-market model to expand coverage across thousands of additional clients where IBM's portfolio is highly relevant.