IBM Stock Declines on Report Starbucks Is Developing Competing AI Software

International Business Machines Corp. (NYSE:IBM) shares declined in premarket trading Monday after a report that Starbucks is developing its own artificial intelligence tools to replace software from outside vendors, including IBM.

Client Becomes Competitor

IBM's stock fell 2.5% in premarket hours following a Bloomberg News report, which cited an internal presentation, that Starbucks is creating an in-house alternative to an IBM tool used for managing maintenance. The coffee giant is also reportedly developing a replacement for a Microsoft system that tracks inventory.

According to the report, some of the new software could be deployed by the end of next year, pending successful testing. The move is part of a broader trend where corporate clients are leveraging AI to build their own solutions, creating a new competitive threat for established software providers.

Broader Market Concerns

Ad

The development at Starbucks has amplified investor concerns about the long-term growth prospects for major software companies. The threat is not just from startups, but from large customers insourcing their software needs. Both IBM and Microsoft have trailed the S&P 500's performance this year amid these mounting pressures.

While building proprietary software can offer initial cost savings, it may also lead to higher long-term expenses related to maintenance and specialized labor, a factor companies must weigh in their decisions.

Starbucks' Cost-Cutting Initiative

Starbucks' push for in-house development is a component of a larger corporate strategy to reduce costs by $2 billion. In an internal forum earlier this year, Starbucks Chief Technology Officer Anand Varadarajan noted that the company spends approximately $400 million annually on software alone, stating there are "clear opportunities to reduce the spend," according to a recording reviewed by Bloomberg.