IBM's Arvind Krishna: AI customers now demand ROI

IBM's latest quarter lands against a backdrop of heightened scrutiny over AI spending. The company beat expectations with 5% revenue growth and $7.8 billion in free cash flow, yet its stock was down 25% year to date as of the taping, reflecting investor caution. CEO Arvind Krishna's comments that customers are increasingly focused on ROI, especially in AI, offer a candid view that contrasts with the unlimited-demand narrative from other tech players.

The prior quarter looms large. After IBM's second quarter, the stock took a big hit on worries that the most lucrative parts of the business, like software, were more discretionary than feared, with some customers delaying consulting spending due to high memory chip prices. In the third quarter, software handily beat expectations and helped calm those fears, while consulting remained flat. But the decision to keep full-year guidance unchanged despite the beat implies a weak fourth quarter, which scared investors.

IBM's position as an enterprise software and consulting business may make it more willing to speak plainly about ROI pressure. Whether that reflects a broader slowdown in AI spending or is specific to IBM remains an open question, but the company's fourth-quarter results will be a key signal for how enterprise AI budgets are evolving.