IBM Touts Rebound from Q2 Shortfall Amid Shift to AI-Focused Spending

IBM's CEO Arvind Krishna acknowledged that the company experienced an execution shortfall in its second quarter of fiscal 2026, but expressed confidence that the trend is reversing. The shortfall was attributed to a sudden shift in customer spending from IBM's core software and infrastructure competencies towards AI-focused hardware components and cybersecurity software.

Krishna noted that this shift resulted in the failure to close a double-digit number of large deals on time, accounting for the majority of the shortfall. However, he claimed that about one-third of those shifted deals had since closed, indicating that it was a deferral rather than destruction.

IBM CFO James Kavanaugh explained that the company witnessed a shift in client spending priorities towards supply chain-constrained hardware and cybersecurity-focused software at the end of June. This led to IBM failing to close large deals on time, affecting its revenue.

Krishna also highlighted plans to increase the use of AI to help scale software development, bolster sales and marketing efforts, and optimize the supply chain. He emphasized that these actions would enhance margin and free cash flow commitments while improving the company's ability to capture growth.