IBM boss Arvind Krishna is stuck between old kit and new AI, and, according to the Wall Street Journal, the cocaine-nosed jobs of Wall Street have noticed the gap.
Krishna has spent years selling investors on hybrid cloud after the hyperscalers charged into the market. He has touted quantum computing too, a next-generation technology he says is three to five years away.
But investors are struggling to picture IBM three years from now, let alone five. A few more weeks like last week, and Big Blue’s future starts to look a bit museum-shaped.
IBM shares fell 25 per cent after the company warned second-quarter results would be much worse than expected. The warning showed AI is not just threatening Big Blue’s software business.
It is making legacy offerings harder to flog in an IT market where corporate spending is being pulled towards shinier AI toys. That is the nightmare keeping plenty of chief executives awake.
The biggest tech companies have cloud businesses that give them a decent AI launchpad. Krishna is stuck managing legacy kit while pure-play rivals nip at the accounts Big Blue once treated as its birthright.
IBM’s predicament is especially grim because it once had a real AI lead with Watson. That natural-language system beat “Jeopardy!” champions Ken Jennings and Brad Rutter in 2011, then Big Blue somehow lost ground.
Now IBM is miles behind AI leaders such as Anthropic, which built Claude and is chasing the corporate customers Big Blue used to dominate.
An IBM lifer, Krishna used the company’s army of consultants to help clients navigate AI. At the same time, he tried to milk mainframes and legacy software while offering more tailored AI products.
His bet was that corporate clients running critical programmes on IBM mainframes could not or would not move everything to remote data centres from Amazon, Google and Microsoft. Big Blue would be the bridge between old iron and cloud.
It was a tough sell to investors, but Krishna had pulled it off.
“AI is in the first innings. It’s still early to see how the game works out and how it goes along.”
Investors eventually bought it. Before this week, IBM shares had more than doubled since Krishna became chief executive in 2020.
That growth looked modest compared with the Fruity Cargo Cult Apple, Alphabet, and other tech giants. Still, it cheered some investors after Big Blue’s miserable previous decade.
In February, Anthropic announced an AI tool that can rewrite Cobol code into a modern language. That appeared to blow a hole through Big Blue’s legacy moat and Krishna’s hybrid strategy.
Krishna said the market had gone too far. “I actually think that we were hit in a way that was unfair,” he said on the Norges Bank Investment Management podcast weeks later.
His case was that rival software companies were exposed to AI, while handling client databases and key business functions would remain valuable. Conveniently, that is Big Blue’s favourite bit of the map.
He still understood the worry. “To give full credit to investors, they’re saying, ‘Look, I can’t decide today… who are the few who might benefit… If I can’t determine that, I’ll take the sector down, and then over time that’ll determine itself based on the numbers that you print,” Krishna said.
For a while, he was right. AI and quantum computing announcements in May helped IBM recover from its February thumping and hit new highs in June.
One announcement had IBM and the Commerce Department outlining plans to invest billions of dollars in a quantum chip foundry. The facility would produce silicon wafers for quantum-computing processors.
IBM has worked on quantum computing for decades and has become much more serious about it over the past 10 years. Krishna wants the first large-scale quantum computer delivered in 2029.
Krishna has tied a big chunk of IBM’s future to quantum unlocking GPU-style growth. Nvidia’s chips have powered the AI boom and turned the company into one of the most valuable outfits on the planet.
Some experts think commercial quantum computing remains 10 years or more away. That is much longer than Krishna’s preferred timetable, and investors are not famous for their patience.
