IBM Vice Chairman Gary Cohn: Our software is not being disrupted by AI

IBM Stock Price and Market Reaction [00:00]

• IBM's stock price faced a downturn following a pre-announcement and warning.
• This was related to capital expenditure (capex) orders and a pause in those numbers.
• The market reacted with concern to the news, impacting the stock value.
• The company stated their software is not being disrupted by AI.

  The market reacted with concern to the news, impacting the stock value.

AI's Impact on Tech Budgets and Spending [01:09]

• The current market situation is described as a temporary rebalancing of tech budgets.
• Companies are spending significantly more on AI tokens than initially projected.
• This increased spending on tokens has led to reduced investment in capex and new machinery.
• IT budgets, set months in advance, are strained by unexpected token costs.
• Companies are questioning the return on investment (ROI) for their AI token expenditures.

  If your budget's X and you spent .9X on tokens, you're not going to invest in capex.

Re-evaluation of Enterprise Infrastructure vs. AI [01:52]

• A key conversation in IT departments and boardrooms is the ROI of AI tokens.
• Companies are deciding whether to cut back on tokens or reinvest in proven enterprise infrastructure.
• There's uncertainty about building out hardware, mainframe, and software infrastructure versus AI infrastructure.
• This indecision leads to pulling back from deals, impacting companies reliant on deal flow.
• A slight pullback in deals over a short period can significantly affect a company's core business.

  And I think we're we're having that that conversation going on in a lot of IT departments, a lot of boardrooms as people start budgeting for next year.

The "Crowding Out" Effect and Supply Demand [02:42]

• Concerns of a "classic bubble" and "crowding out" have been raised.
• The argument is that AI might be crowding out traditional software investments.
• A supply-demand scenario is presented: building data centers requires labor (electricians, cement workers) which increases costs for other construction projects, like building houses.
• This leads to a crowding out effect in the construction world due to higher labor costs.
• However, the speaker believes it's too early to know the long-term impact on the entire technology and AI software world.

  So there is a little bit of crowding out right now going on as in the construction world, but I don't think we've gotten to the point where we know where the whole technology software AI world is going to end.

Quantum Computing and Future Outlook [00:37]

• IBM's stock had rallied significantly over the past 3-4 months due to interest in quantum computing.
• There have been numerous interesting announcements in the quantum space.
• IBM has secured a deal with the federal government for quantum initiatives.
• The company is actively building a quantum foundry.
• These quantum-related activities are ongoing and performing well, separate from AI budget concerns.

  We had rallied quite a bit over what's going on in the quantum world.

Transparency and Earnings Release [03:31]

• The current business situation is described as potentially "temporary."
• Customers who previously "punted" on business are expected to return.
• IBM will provide more details during their earnings release next week.
• Arvind Krishna emphasized the importance of transparency and not surprising the market.
• The company aims to be upfront with stakeholders about their performance and outlook.

  Look, I think that Arvin wants to be totally transparent. Yeah. I think Arvin is took it upon himself to say, "Look, I want to be transparent to the world. I don't want to surprise it."