Concerns that AI will eat away at software businesses are heightened by the launch of tools that can automate routine tasks for companies.
issued Thursday, April 23, 2026 · 08:24 AM
[BENGALURU] IBM’s first-quarter revenue growth slowed due to a slump in its software business, and the company’s shares fell 6.5% in after-hours trading on Wednesday (April 22) as concerns about disruption from artificial intelligence tools grew.
Concerns about AI encroaching on the software business have been heightened by the launch of tools that can automate routine tasks for companies.
IBM has been particularly hard hit since Anthropic announced in February that one of its tools could help modernize Cobol, a language widely used on its mainframes.
Big Blue’s first-quarter sales rose 9% to $15.9 billion, beating analysts’ average estimate of $15.6 billion but slower than the 12.2% increase seen in the previous quarter, according to data compiled by LSEG.
IBM’s software division, anchored by its high-margin hybrid cloud unit Red Hat and a suite of AI tools under the Watsonix brand, also posted slower revenue growth of 11.3%.
“Bets on these results were higher than usual given the software and services sales pressure the market has seen this year amid concerns about AI competition, but we do not believe the first quarter results justify those concerns,” CFRA analyst Brooks Idlett said in a statement.
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Growth in the company’s infrastructure segment remained strong, supported by continued deployment of modern mainframe systems. Sales for the division, which includes mainframe computers, rose 15.2% to $3.3 billion in the quarter.
Analysts say IBM’s deep relationships with customers and AI products such as Watsonx Code Assistant, a coding modernization tool for mainframes, could help it compete with competing AI tools.
CFO James Kavanaugh told Reuters that customers using the tool are seeing rapid growth in mainframe consumption. “Gen AI in mainframe modernization is really an accelerator, contributing to the overall mainframe portfolio,” he said.
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IBM’s adjusted quarterly earnings were $1.91 per share, compared to expectations of $1.81.
In a post-earnings conference call, CEO Arvind Krishna downplayed the impact of the Middle East conflict, saying IBM was experiencing the strongest growth in the region in decades and could absorb the disruption from the closure of the Strait of Hormuz for several more weeks. Reuters
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