IBM CEO: AI to replace only small fraction of company's software

IBM CEO Arvind Krishna sought to reassure investors following the company's disappointing second-quarter financial results, stating that artificial intelligence (AI) threatens to replace only about 2% of IBM's software portfolio. Krishna told CNBC that the bulk of IBM's software assists clients in preparing for AI adoption, unlocking data in real time, and managing hybrid infrastructure.

Wall Street has grown wary of software stocks due to concerns that AI could disrupt their business models. IBM's stock has fallen approximately 30% this year. This follows a February incident where the stock dropped 13% after AI firm Anthropic showcased a tool capable of modernizing legacy Cobol code, often found on IBM's mainframe systems.

Krishna acknowledged that certain software, like the recently discontinued Tririga lease management system, is indeed vulnerable to AI replacement. He also noted that challenges in the mainframe business, where revenue dropped 42% in the quarter, impacted related software sales. Transaction processing software revenue declined 9%.

Despite these headwinds, IBM maintained its guidance for a $1 billion increase in free cash flow for the year. However, the company now projects software revenue growth between 6% and 8%, a reduction from earlier expectations of double-digit growth. Krishna anticipates that approximately 75% of deals delayed from the second quarter will return by year-end.