AI

Our AI models and the methodologies used to train them may be flawed.

AI presents challenges, risks, and potentially unintended consequences.

We are increasingly utilizing AI and ML capabilities in our business operations and our product offerings.

Further, AI is constantly evolving and may not be as reliable as traditional software.

The courts and regulators have not clearly defined the scope for artificial intelligence-generated content, algorithms or trained models.

Our AI-enabled technology could be used by an end user in a manner publicly perceived as controversial.

Software produced by generative AI may infringe the rights of others.

Our use of such technologies may create dependencies on third-party AI providers.

Moreover, AI models and training approaches may contain errors or limitations.

•liabilities related to the data, models, and use of artificial intelligence (“AI”) in products or business processes;

Product demand conditions for future periods can be difficult to predict, particularly in rapidly evolving sectors such as AI infrastructure.

Advances in technology, such as automation, AI and data science, could lead to workforce displacement.

The regulatory framework for AI continues to evolve and is largely unsettled and fast-moving to varying extents in the jurisdictions in which we operate.

Collectively, these developments signal an emerging trend towards a patchwork of state-level governance of AI in the United States.

While AI adoption is likely to continue and grow, the sustainability of such elevated investments cannot be assured.

For example, as agentic commerce solutions scale, we may see increased instances of erroneous or disputed payments, increased chargebacks and reputational harm.

At the state-level, numerous states have enacted laws regulating AI.

Further, AI technology itself can give rise to risks.

Negative incidents, including the loss of merchandise as a result of shrink or theft, ineffective use or misuse of AI technologies, inaccurate, biased or otherwise flawed

Emerging technologies, such as AI and quantum computing, are expected to increase these risks.

•rapid development and integration of AI technologies,

We are exposed to risks related to the use of AI tools by us and others.

In some jurisdictions, the application or interpretation of these laws and regulations is not clear, including application to agentic actions taken by AI.

Failure to successfully develop increasingly advanced technologies, including our custom AI accelerators or XPUs, network switches and other AI-related products, could impair our competitive position.

•our ability to utilize and build AI and ML capabilities into our business and incorporate AI and ML into our internal operations;

Our use of generative AI ("GenAI") and other AI technologies presents certain risks and challenges given the emerging nature of AI technologies.

To remain competitive, we may need to develop, integrate and scale AI-enabled search, discovery, personalization, recommendation and other digital commerce capabilities, including through third-party tools and platforms.

Our use of AI in our internal operations and technologies may also create new vulnerabilities or methods of attack.

Our use, or unauthorized or inappropriate use, of AI tools may also expose confidential, proprietary, personal or other sensitive information.

AI technology is evolving quickly.

•conditions or trends in the internet, other technologies including artificial intelligence, and the industry segments we operate in;

The use of AI carries risks related to the accuracy and reliability of its outputs.

In addition, we employ practices designed to evaluate, track, and mitigate the risks associated with the use of generative AI.

The rapid evolution and increased adoption of AI technologies may intensify these risks.

Any changes in laws, rules or regulations regulating artificial intelligence technologies could require us to expend significant resources to modify our products, services, or operations to facilitate compliance or remain competitive.

The widespread use of AI, and its increasing capabilities, is enhancing the frequency and effectiveness of threat actors.

In the U.S., a patchwork of emerging AI-related laws and regulations could also require us to modify our practices or increase compliance costs.

AI may enable new competitors in drug discovery and enhance the capabilities of existing competitors, thereby broadening and intensifying competitive dynamics.

We have entered into agreements with AI clouds to enable broader access to our data center infrastructure products.

However, in recent years use of these AI Technologies has come under increased regulatory scrutiny.

AI technologies are subject to evolving and uncertain U.S. federal, state, and international laws and regulations.

We incorporate AI capabilities across our technologies, business operations, products and services to enhance performance and drive smarter, more efficient solutions.

Consumer and societal attitudes toward AI are evolving and there is a risk that customers, regulators or the public may perceive AI technologies negatively.

Further, jurisdictions are increasingly applying existing data privacy, consumer protection and other laws to AI, including emerging AI technologies such as generative AI.

Such attacks are becoming increasingly more sophisticated as threat actors leverage AI technologies.

In recent years, an increasing number of customers and potential customers have been allocating their spending toward artificial intelligence capabilities.

In January 2026, South Korea's AI Basic Act took effect, introducing heightened obligations on providers and operators of “high-impact” AI systems used in critical sectors, and authority to impose suspension of AI services along with administrative fines for noncompliance.

Additionally, our increasing use of AI technologies for productivity and in our products and services may expose us to copyright infringement or other intellectual property misappropriation claims.

We have incorporated and may continue to incorporate AI into and across our platform.

Employees may leave Tesla or choose other employers over Tesla due to various factors, such as a very competitive labor market for talented individuals with automotive or technology, including AI, experience, or any negative publicity related to us.

The Company’s business, including its artificial intelligence and machine learning offerings, also depends on access to sufficient computing resources.

Our activities expose us to many different counterparties and countries, as well as different industries, including new and emerging industries, such as those related to AI.

AI; developments in technologies supporting our regulatory and compliance obligations; and in-store, digital, agentic and social commerce.

For example, our AI-native cohort, which cohort includes our largest customer, contributed high single digit percentage points to the total Company year-over-year revenue growth for the quarter ended June 30, 2026.

Data practices by us or others, AI governance, AI development and validation practices that result in controversy could also impair the acceptance of AI solutions.

Novel methods, such as those utilizing AI or quantum computing, may be even more difficult to detect and defend against.

•our failure to adapt our products to address the security and operational risks from AI, or to incorporate AI-driven improvements demanded by potential customers;

For example, the development and use of generative AI tools remain subject to uncertain legal frameworks, and the availability of copyright and other intellectual property protection for AI-generated material is uncertain.

•Our growing use of artificial intelligence (“AI”) and machine learning may present additional risks, including risks associated with algorithm development or use, the tools and data sets used, and/or a complex, developing regulatory environment.

To remain competitive, we must also continuously adapt and capture the benefits of new and emerging technologies, such as AI, including successfully applying advances in the ability to process and integrate large amounts of data to our businesses and decision-making processes.

The emergence of cyber-focused large language models may continue to accelerate the exploitation of vulnerabilities, and increase the frequency, speed and severity of threats.

Our use of new and emerging AI capabilities, such as AI agents, may cause unanticipated effects, which may include the disruption of our business processes and procedures or the loss of intellectual property or critical data.

U.S. regulations under the U.S. Treasury Department’s Outbound Investment Security Program impose restrictions on certain outbound investments by U.S. persons in foreign entities engaged in sensitive technologies, including semiconductors, artificial intelligence and quantum computing, and may prohibit or require notification of certain transactions, which could limit our ability to pursue or structure certain invest

•compliance with applicable foreign laws and regulations, including anti-bribery laws, privacy and data protection laws, AI laws, economic and trade sanctions, and laws relating to content and consumer protection;

Shifting public policy regarding data privacy and the effects of artificial intelligence has caused and may in the future cause us to incur substantial costs to modify our operations or business practices, reduce consumers’ willingness to engage with our offerings, or cause delays or lapses in the availability of our products or services in various jurisdictions.

•The EU's Digital Markets Act, which requires in-scope companies to obtain user consent for combining data across certain products, mandate the sharing of search data with third-party search engines, and require interoperable access to the Android operating system by third-party AI companies, among other changes; and the EU Data Act, which introduces new data portability requirements with respect to connected product

In Canada, the legal and regulatory framework governing privacy, including health information privacy, is evolving rapidly, particularly with respect to the use of artificial intelligence and digital health technologies.

As stated more comprehensively and in context of several risk factors throughout this Item 1A., if the company does not continue to be recognized as an AI leader with strong governance processes or if our AI technologies do not work as intended or produce unexpected outcomes, IBM’s ongoing efforts to maintain and increase its market share and its profit margins, its reputation, and its competitiveness could be harmed

The increasing use of data analytics, automation and artificial intelligence across digital platforms is further reshaping how consumers discover, evaluate and engage with brands.

•impact of evolving risks related to artificial intelligence (AI), cybersecurity and data privacy across our products, operations, regulatory compliance, intellectual property, talent, and transactions;

The types of threats also continue to evolve, and may include social engineering attacks using AI tools, ransomware, and supply-chain attacks.

These cyberattacks are becoming increasingly sophisticated and dynamic, including as a result of artificial intelligence and machine learning capabilities.

In connection with the Xilinx, Pensando, Silo AI and ZT Systems, we recorded