IBM Navigates an AI Identity Crisis: Consultancy Gains Under Threat as Software Push Accelerates

International Business Machines finds itself caught in a paradox that is reshaping the entire tech landscape. The company is betting heavily on generative artificial intelligence as a growth engine, yet the very automation it champions is cannibalizing its traditional consulting business. This tension has come into sharp focus over the past month, as IBM shares have shed more than 25% from their June highs, settling near EUR 217.75. The selloff was triggered not by IBM itself, but by peer Accenture, which tightened its annual forecast on June 18, sending shockwaves through the IT sector. IBM’s consulting segment, which grew just 1% in the first quarter, was particularly exposed.

The rout deepened after IBM published a study revealing that 91% of executives do not fully understand their own AI dependencies. Analysts interpreted this as a warning that corporate clients may delay large-scale AI projects, directly threatening the company’s growth narrative around hybrid cloud and the watsonx platform. Yet beneath the market turmoil, IBM is quietly executing a strategic pivot. The company has recognized that its traditional consulting business, long built on labor-intensive migration projects, is being eroded by the same AI tools that promise efficiency. When software can modernize legacy COBOL systems in a fraction of the time, billable hours shrink — and profits along with them.

In response, IBM is accelerating its shift toward high-margin, recurring software revenue. The acquisition of Confluent, completed in March 2026 for billions, is now being integrated into the portfolio. More than 6,500 companies — including 40% of the Fortune 500 — already use Confluent’s real-time data processing platform. This week, IBM launched zSecure Secret Manager, a niche tool that automates security certificate renewal, signaling continued investment in the mainframe ecosystem. Meanwhile, a multi-year partnership with ServiceNow aims to help enterprises modernize outdated IT systems and enable autonomous operations, with initial solutions expected in the second half of 2026.

Should investors sell immediately? Or is it worth buying IBM?

The software pivot is anchored by watsonx, IBM’s AI platform, with a particular focus on governance. As global regulations tighten — notably the EU AI Act, which is gaining force this year — watsonx.governance offers companies transparency and legal cover for their AI models. IBM is wagering that data sovereignty and control will become the new backbone for large organizations, compensating for stagnation in consulting. But the transition is costly. The company is investing $5 billion over five years in quantum computing, plus an additional $1 billion for a new quantum wafer fab in Albany, New York, with the U.S. Department of Commerce contributing another $1 billion via the CHIPS Act. Commercial quantum systems are not expected before 2029, meaning these outlays will pressure operating margins with no near-term payoff.

Analysts have taken notice. The average price target across 28 covering analysts stands at $281.42, implying roughly 10% upside from current levels. However, that target has been cut by about 12% over the past three months. Technically, the stock’s relative strength index sits at 43, suggesting oversold conditions but not yet a clear buy signal. The 200-day moving average of EUR 235.59 is roughly 7% above the current price, indicating that a sustained recovery may require a catalyst.

All eyes are now on July 22, when IBM reports second-quarter results. Consensus estimates call for earnings per share of $3.06 on revenue of $18.05 billion. Investors will be watching closely to see whether consulting revenue picks up and whether the Confluent integration is already bearing fruit. More importantly, management must demonstrate a clear acceleration in new AI-related bookings to restore confidence. For now, the market is weighing solid operational performance against the uncomfortable reality that IBM’s own AI tools could be its biggest competitive threat.