Is IBM the Next Hot AI Stock? This Analyst Says Watson X Software Is Company’s Most Promising New Product In Years.

“Watson X is the most promising new, organically developed software product IBM has launched in years,” MoffettNathanson analyst Lisa Ellis wrote in a research note following the earnings report. She thinks Watson X could be “a new blockbuster for IBM,” exceeding Red Hat’s hybrid cloud platform. 

Krishna said that in just the first 10 days of availability, Watson X software has been deployed to more than 150 clients, among them Samsung, Citi, and NASA. As Ellis notes, IBM has no plans to offer a general-purpose chatbot like ChatGPT. Instead, IBM is focused on meeting enterprise AI requirements, including data privacy, integrity, and governance. 

IBM is no newcomer to AI: Big Blue has been working on artificial intelligence software for longer than almost any other company on Earth. You might recall that IBM’s DeepBlue chess playing supercomputer beat the world champion Garry Kasparov in a 6-game match in 1997, more than a quarter-century ago.

And yet, while the market this year has dived headlong into almost every AI-related stock imaginable over the first half of the year, IBM has largely been left out of the party: Shares are down 1% so far this year. Compare that to

Nvidia

(NVDA), up 214%,

Microsoft

(MSFT), up 45%, and Alphabet (GOOGL), up 36%.

As Barron’s has reported previously, Watson X has three parts: Watson.ai works with customers to create new models, or data sets. Watson.data acts as a data store, putting the company in competition with

Snowflake

(SNOW), among others. And Watson.governance monitors AI models to make sure they are accurate and accountable, not filled with false or offensive information.

“There are endless potential use cases for generative AI models in an enterprise context,” Ellis writes, “such as augmenting HR, performing predictive IT maintenance, helping with financial forecasting, performing fraud detection, compliance monitoring, risk management, and supply chain optimization, among others.”

She says she sees potential for generative AI to “transform a wide range of business processes, ranging from industry-specific use cases, such as drug discovery, to functional use cases, such as software coding or call center operations.”

Krishna talked extensively about the potential for Watson X on the company’s earnings call. “Large language models are a step change in the evolution of AI, with more than 80% of enterprises exploring their use,” he said. “We believe the opportunity for large language models for enterprises is immense given the existing amount of business data. This includes sensor data, chemistry data, materials data, geospatial data, code, and of course, speech.”

Ellis maintains her Market Perform rating and $145 target price on IBM shares. After posting better-than-expected profits for the second quarter, IBM stock on Thursday is up 3.2%, to $139.75.

Write to Eric J. Savitz at [email protected]