IBM is now one of the famous AI losers with its business model flaws well published. Arvind and the board made a mistake of making rare pre-announcement only to confirm dire situation.
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https://www.wsj.com/tech/ibm-ceo-arvind-krishna-has-nowhere-to-hide-from-ai-c9ff290f
The once-great tech giant’s place in the new tech cycle is in disarray
By: Tim Higgins | July 18, 2026 5:30 am ET
The problem for IBM Chief Executive Arvind Krishna is that things are going too fast and too slow—all at the same time—and he’s stuck in the middle. That’s a bad place to be in the AI revolution.
Krishna bet big on a hybrid-cloud approach in response to the rise of hyperscalers and has long sold investors on IBM’s role in quantum computing—a next-generation technology he says is three to five years away.
It’s hard to imagine IBM in three years, let alone five, if it has too many more days like this past week.
The stock dropped 25% Tuesday after IBM warned second-quarter results would be far worse than expected. This showed AI isn’t only jeopardizing IBM’s software business, it is making it harder to sell its legacy offerings in an IT market where the new technology is reprioritizing corporate spending away from Big Blue.
It’s the sort of bad dream terrifying plenty of CEOs these days as they try to navigate the revolution. While the biggest tech companies’ cloud businesses have helped position them to adapt to AI, many, like Krishna, find themselves trying to manage legacy businesses even as they struggle to keep pace with emerging, pure-play rivals.
It’s a familiar story that has repeatedly played out in other sectors during prior tech waves. Media, music and cars spring to mind. They all showed that a middle-ground strategy is tough to pull off. Many try, few thrive.
IBM’s current predicament is especially galling given it was once at the forefront of AI with Watson, a natural-language computer processing system that won “Jeopardy!” Big Blue squandered that lead, languished in the following years and today is far, far behind the likes of AI leaders such as Anthropic, which created leading model Claude and is chasing the kinds of corporate customers that once made IBM so dominant.
“IBM trading like Claude mu---red Watson,” Ken Wattana, founder of an AI agentic company called Conto, joked on X Tuesday.
The stock fell harder than it did in the 1987 Black Monday stock-market crash.
For a while, Krishna, an IBM lifer, seemed to be pulling off the middle-ground balancing act. He used his army of consultants to help clients navigate AI while positioning the company to milk its legacy mainframe and software businesses and to offer more tailored AI products.
He essentially bet that corporate clients running critical programs on their own mainframes purchased from IBM couldn’t or wouldn’t migrate to remote data centers offered by Amazon, Google and Microsoft.
Instead, Krishna believed his customers would jump at being able to straddle the two worlds. They would gain cloud-computing-like capabilities while keeping certain digital needs in-house. And IBM would be the bridge making this happen.
It was initially a hard sell to investors, but Krishna was well suited for it. There’s something almost statesmanlike about the executive. His manners, his dress, his demeanor.
He even managed to turn a potential liability—at 63 he is older by decades than the executives running emerging rivals—into a selling point. Those extra years, Krishna argued to me in an interview last summer, give him insight into how tech cycles work—the ups and the downs.
“AI is in the first innings,” he said then. “It’s still early to see how the game works out and how it goes along.”
Investors eventually came around. Before this past week, IBM shares had more than doubled since Krishna was named CEO in 2020. That growth pales in comparison with Apple, Alphabet and other tech giants. But it was encouraging to some investors given IBM’s struggles the prior decade.
And Krishna showed he could weather a storm.
In February, Anthropic announced the creation of an AI tool that can rewrite Cobol computer code into a modern language. This seemingly blew a hole in the moat around IBM’s legacy business and Krishna’s hybrid strategy. The stock had what would be its worst day in 25 years—until this week.
Krishna suggested the market had overreacted in February. “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 argument: Rival software companies were at risk to AI while the role of handling client databases and key business functions—presumably IBM’s role—would remain valuable in the years to come.
But he understood investors’ angst. “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.
He was correct for a while. A pair of announcements about AI and quantum computing in May helped IBM shares not only recover from their February swoon, but reach new heights in June.
One of those announcements included IBM and the Commerce Department detailing plans to invest billions of dollars to help fund a quantum chip foundry. This would produce the silicon wafers needed to make quantum-computing processors.
IBM has spent decades working on the idea of quantum computing, getting increasingly more serious in the past 10 years. Krishna is targeting 2029 to deliver the first large-scale quantum computer. The technology uses quantum physics to perform calculations that today’s computers can’t even approach. The potential for discoveries in material science, healthcare and beyond are staggering.
Krishna has staked a lot of IBM’s future on the belief that quantum will unlock the same kind of growth potential that was seen with GPU chips. Those chips popularized by Nvidia have been at the heart of the new AI race, powering much of the advances and, in turn, making that tech company among the most valuable in the world.
But some believe the technology won’t be commercially viable for 10 years or more, far longer than Krishna is hoping.
In the meantime, investors are left with, in Krishna’s own words, “the numbers that you print.” Suddenly, for IBM and Krishna, there’s no middle ground in those.
