IBM CEO Arvind Krishna looks on during a round table discussion hosted by President Donald Trump in the Roosevelt Room of the White House in Washington, Dec. 10, 2025.
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IBM Chief executive Arvind Krishna said only 2% of his company’s software could be replaced with applications built on artificial intelligence, as he sought to reassure Wall Street following disappointing second-quarter results.
“Some of our software is really helping people get ready for AI, unlocking data in real time, reducing the cost and complexity of managing it, bypassing the hybrid infrastructure, which most of our customers use,” Krishna told CNBC’s “Squawk on the Street” on Thursday. “And because it will be what you would call infrastructure software, not applications, I believe it will be a breeze for us.”
Wall Street has turned skeptical of software stocks in the past few years due to concerns that AI will disrupt their business models as technology from Anthropic, OpenAI and others becomes more powerful. IBM shares are down about 30% this year, too iShares Expanded Tech-Software Sector Exchange-Traded Fund (IGV) decreased by 17%.
In February, IBM saw shares drop 13% after Anthropic released a blog post about its Claude Code tool’s ability to modernize code written in Cobol, which is typically found on mainframes.
Krishna told analysts on Wednesday, after the company’s earnings report, that IBM’s current-generation z17 had experienced challenges this quarter. Chief Financial Officer Jim Kavanaugh said some customers have chosen to spend money on other data center assets, such as servers and storage, as memory prices rise due to AI chip requirements.
For every dollar in revenue IBM generates from its mainframe infrastructure, it collects $3 from software. Just as IBM’s Z mainframe business saw revenue fall 42% in the quarter, transaction processing software fell 9%. It was a sharp turnaround from the first quarter, when Z’s revenue grew 48%, and processed transactions rose 2%.
During the June quarter, 45% of IBM’s revenue came from software, where profit margins are the tightest.
Krishna said Starbucks spends about $2 million a year on IBM software. He said the coffee maker is releasing Tririga lease management software. IBM purchased Tririga in 2011, and plans to end support in 2027.
“That’s a big part of that 2% I talked about, and I think software like that is vulnerable,” he said. “By the way, what they had was a 10-year-old piece of software.”
While IBM stuck to its guidance of $1 billion in free cash flow by 2026, Kavanaugh said Wednesday he expects 6% to 8% growth in annual software revenue. In January, he said he hoped the growth rate would be double digits.
Krishna said on Thursday that the volume of mainframe hardware is increasing, which has an impact on software.
“The software on that tends to slow down the hardware, and I think if we give it another year, you’ll find the software will bounce back,” he said.
About 75% of the deals that fell through in the second quarter should return to IBM before the end of the year, Krishna said.
“We will refrain from giving full credit for retained guidance until a significant portion of the smooth activity is reflected in reported results,” Jefferies analysts wrote in a Thursday note to clients. They recommend buying the stock.
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