Source: PaxForex Premium Analytics Portal, Fundamental Insight
This marks a significant juncture in the extensive history of International Business Machines (IBM).
In 2012, the technology behemoth underwent a dramatic transformation. While others were just beginning to emulate IBM's comprehensive business model, which encompassed a wide array of technology solutions spanning servers, storage, software, and consulting services, Ginni Rometty assumed the CEO role from industry icon Sam Palmisano, signaling a shift.
Rometty orchestrated the divestiture or spin-off of much of IBM's hardware division, including laptops, desktops, storage, and Unix servers. Additionally, she sought to offload slower-growing services, resulting in the establishment of the independent Kyndryl entity from IBM's infrastructure services branch.
Concurrently, IBM redirected its substantial resources, talents, and expertise toward a select few avenues poised for future growth. After an eight-year tenure, Rometty passed the baton to cloud and cognitive software pioneer Arvind Krishna in 2020. Under Krishna's seasoned leadership, the revitalized IBM is centered around cloud computing and artificial intelligence (AI). Unlike its counterparts, IBM boasts a unique blend of software, services, and consulting capabilities, specifically tailored to enterprise clients.
Now, the time has arrived to capitalize on this revamped strategy. AI has emerged as a focal point, driving widespread interest and investment across the market. While IBM's steadfast commitment to enterprise customers may have initially tempered its financial gains amid the AI fervor, the company is poised to make a significant foray into the AI arena.
At a recent industry conference, CFO Jim Kavanaugh outlined IBM's strategy for the upcoming years.
"You're witnessing a fundamentally different IBM today, one that's laser-focused on what we consider to be the two most transformative technological shifts: hybrid cloud and generative AI," Kavanaugh stated. "We're incredibly enthusiastic about the secular growth potential of generative AI. We've strategically repositioned IBM around what we believe to be the two most transformative technologies: hybrid cloud and generative AI, leveraging the synergistic impact of these two."
Kavanaugh envisions a market opportunity worth trillions of dollars annually with this dynamic combination. IBM doesn't necessarily need to dominate the sector to reap significant revenue and profits from cloud-based generative AI platforms.
IBM's renowned consulting expertise becomes a critical factor here. While AI competitors like Microsoft or OpenAI may possess robust generative AI systems, they lack the extensive support services that Big Blue has honed over decades. So, when a potential client ventures into the realm of AI but struggles with installation, maintenance, and utilization of this cutting-edge technology, IBM steps in, ready to dedicate significant billable hours to provide support.
The seriousness of IBM's commitment to this competitive advantage becomes evident when examining the latest round of earnings calls. In January's second-quarter call, Microsoft executives and financial analysts mentioned AI over 70 times, with 12 references to generative AI partner OpenAI. Surprisingly, the concept of consulting arose only once, in the context of a major AI customer utilizing in-house consultants to enhance productivity.
Similarly, Google's parent company, Alphabet, discussed AI 82 times in its fourth-quarter call, with a single mention of consulting, highlighting a partnership with consulting giant Accenture for AI service installation and support.
In contrast, IBM's fourth-quarter call featured 43 mentions of AI by the leadership team and another 12 discussions regarding the Watsonx AI platform. CEO Arvind Krishna emphasized the significance of the consulting business as a core driver of IBM's value proposition, generating $20 billion in revenue in 2023, constituting 32% of the company's total sales. This substantial contribution underscores IBM's unique success story in the thriving AI market, a narrative that Wall Street is gradually awakening to.
Although IBM's fourth-quarter report ignited optimism among investors, the stock continues to trade at a considerable discount compared to other AI-driven market leaders. Despite this, IBM's AI with a consulting edge could emerge as the preferred solution for businesses by 2027, not only driving adoption but also facilitating seamless integration. This transformation has the potential to redefine industry standards and investor expectations, positioning IBM as a visionary player in the tech sector's future.
For investors seeking exposure to the burgeoning AI market without breaking the bank, IBM presents an attractive option. Positioned at the intersection of value and growth, IBM offers a compelling investment opportunity, poised to lead the charge into the next era of technological innovation.
As long as the price is above 180.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 187.78
- Take Profit 1: 200.00
- Take Profit 2: 210.00
Alternative scenario:
If the level of 180.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 180.00
- Take Profit 1: 175.00
- Take Profit 2: 165.00
