During a recent interview, IBM CEO Arvind Krishna emphasized that the majority of IBM's software is designed to facilitate AI integration rather than be replaced by it. This statement comes in light of a challenging second quarter, where IBM's Z mainframe revenue fell by 42% and transaction processing software declined by 9%.
Krishna noted that while Wall Street has grown skeptical about software stocks due to AI advancements from competitors like Anthropic and OpenAI, he believes that IBM's infrastructure software will ultimately benefit from AI developments. He mentioned that 45% of IBM's revenue is derived from software, which typically has higher profit margins.
Despite the current challenges, Krishna maintained the company's guidance for a $1 billion increase in free cash flow by 2026 and projected a 6% to 8% growth in software revenue for the year, down from earlier expectations of double-digit growth.
Analysts at Jefferies have recommended buying IBM stock, citing that a significant portion of deals that were delayed in the second quarter are expected to return before the end of the year