From modernising Cobol to rolling out agents, there's only one business where AI spend comes at the cost of non-AI spend, says IBM.

Customer spend on AI – such as a genAI book of business worth $7.5 billion since its inception – is almost never at the cost of non-AI spend that would have gone to IBM, it claimed on Wednesday night.

IBM published half-year earnings that showed its finance and consulting businesses effectively flat, while both revenues and profit margins were up in software and infrastructure, the former by double figures.

A lot of the growth was down to AI, CEO Arvind Krishna and CFO Jim Kavanaugh told analysts. The new Z17 mainframe was selling in part to support AI projects. Software was boosted by watsonx's promise to help port Cobol to Java. Red Hat was selling to support AI workloads.

See also: IBM launches its z/17 mainframe, wants you to run AI inference on it

The consulting business reported "continued momentum in generative AI bookings". An explosion in code thanks to agentic AI is expected to cause a spike in demand for automation. 

Where is the money coming from? Not from budgets that would have been spent with IBM on non-AI products, said Krishna.

AI spending on semiconductors is "completely incremental", he said. At the enabling-software layer, the AI spend is "purely incremental", though clients will look for savings on internal labour and third-party labour. At the level of software products, AI is a question of market share, said Krishna, with spend being redirected from vendors who do not offer an AI advantage.

The one exception is consulting, where IBM customers were "directing their dollars to [AI-related] consulting as opposed to alternate types of consulting", he said.

See also | The Big Interview with IBM's Jamie Thomas

IBM is bullish about the US government market, which it expects to switch from a six-month focus on saving money to modernising infrastructure.

It is bullish about various geographical markets, including Japan and Europe, with its new impetus to spend heavily on defence.

"Europe has remained remarkably resilient as a technology consumer," said Krishna. "I believe the reason for that is that when they look at their concerns around supply chains, they look at the issues around cyber, and they look at their labour demographics, technology offers them an actual answer against all of those."

But IBM is particularly bullish about AI, and its positioning in the market.

IBM has "always been about being in a heterogeneous space", said Krishna. If other vendors focus on their own AI agents, "great". Meanwhile, IBM will service bespoke agents, its homegrown agents, as well as third-party agents, and win business.

IBM reported revenue of $17 billion for the second quarter, up 5% in constant currency, with year-to-date free cash flow of $4.8 billion.

It now expects full-year free cash flow "to exceed $13.5 billion".

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