IBM Chairman and CEO Arvind Krishna questioned enterprise spending on frontier AI models during the company's third-quarter 2026 earnings call. Krishna said open-weight models deliver about 90% of frontier models' effectiveness. Krishna put open-weight models' token costs at 10% to 25% of frontier models' token costs. Krishna asked whether enterprises should pay 10 times more for the highest-performing models rather than accept 90% effectiveness at 10% of the cost.
Krishna said IBM estimates that an average large enterprise could begin running open-weight models with perhaps two or three racks of infrastructure. Krishna said open models performed substantially worse than frontier models on benchmarks in late 2024, but the performance gap has since narrowed. Krishna said cheaper alternative models are adequate for most routine enterprise work, including email summaries, customer calls and contract reviews.
Krishna said the improving economics of open-weight models coincide with growing enterprise interest in sovereign AI. Companies increasingly seek control over sensitive data, logs and model activity, increasing demand for private AI infrastructure and infrastructure on company premises.
IBM reported total revenue of $17.1 billion for the third quarter. IBM Senior Vice President and Chief Financial Officer Jim Kavanaugh reported a 9% acceleration in software revenue. Kavanaugh said transaction processing grew 10%, with IBM's mainframe software driving the increase. Management had previously attributed second-quarter mainframe weakness to deals slipping into a later period. Technology analyst Patrick Moorhead described the preceding quarter's decline as an "aberration" in a post on X, supporting management's earlier explanation.
IBM shares dropped 4.64% in overnight trading. IBM shares have fallen 10.85% over the past year. IBM shares have lost 15.11% year-to-date. However, IBM shares have gained 8.42% over the past month. IBM shares ended Wednesday at $251.464, a gain of 3.94%. Benzinga's Edge Stock Rankings show a strong short-term price trend for IBM but weak medium-term and long-term trends. The rankings also give IBM a poor value score.
IBM CEO Says Open AI Models Offer 90% Effectiveness at 10% Cost
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Summary
IBM CEO Arvind Krishna said open AI models offer 90% of the effectiveness of frontier models at 10% to 25% of the cost, during the Q3 2026 earnings call. He argued that open models are sufficient for most enterprise tasks like email summaries and contract reviews. The performance gap has narrowed since late 2024. Enterprise interest in sovereign AI is rising due to data control concerns. This AI + crypto news highlights cost efficiency in AI adoption.
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