We came across a bullish thesis on International Business Machines Corporation (IBM) on Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on IBM. International Business Machines Corporation (IBM)’s share was trading at $229 as of Dec 3rd. IBM’s trailing and forward P/E were 33.38 and 21.23 respectively according to Yahoo Finance.
A close-up view of an AI-platform software code running on a monitor.
IBM stands at a pivotal moment as it transitions into the era of autonomous AI agents, a shift that could redefine its position in the tech industry. While co-pilots that assist users in generating code or drafting emails have dominated AI so far, IBM’s focus on agentic AI aims to go further, enabling systems to autonomously execute tasks based on user-defined goals and real-time data. This marks a significant evolution, positioning IBM to capitalize on the next wave of AI-driven transformation.
Long regarded as a mature company struggling to maintain relevance, IBM has faced challenges in balancing innovation with investor expectations. As Aswath Damodaran advises, mature firms should prioritize shareholder returns, yet the tech industry’s rapid pace makes such a strategy risky. Companies that fail to innovate risk obsolescence, and IBM has been no stranger to this dilemma. However, 2023 has brought renewed optimism, with IBM’s stock up over 40%, including dividends—a signal that investors see potential in its AI-driven resurgence.
At the heart of this transformation lies IBM’s watsonx.ai platform, which integrates advanced AI orchestration and development capabilities. Watsonx.ai allows businesses to deploy domain-specific AI agents that combine generative AI, business logic, and industry expertise to enhance productivity across functions. Its orchestration tool acts as a “supervisor” for autonomous AI agents, enabling users to assign tasks via natural language, while the development toolkit supports a range of use cases from custom solutions to low-code options. This versatility positions IBM to meet diverse client needs, driving efficiency and innovation simultaneously.
Despite these advancements, IBM faces a dichotomy between investor expectations and operational realities. While subscription revenues are growing at an annual rate of over 20%, overall top-line growth remains modest. AI’s transformative potential has fueled market optimism, with investors betting on significant revenue gains in the near future. Yet, IBM executives remain cautiously optimistic, acknowledging that AI’s immediate impact on financial performance is still limited. This disconnect between investor sentiment and company guidance sets the stage for a decisive period.
The next few quarters will likely determine IBM’s trajectory. If AI initiatives can translate into tangible revenue growth, IBM may exceed its modest expectations, providing the momentum needed for sustained stock price appreciation. Conversely, failure to deliver on these expectations could dampen enthusiasm, leading to stagnation or even declines in the stock’s performance.
International Business Machines Corporation (IBM) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held IBM at the end of the third quarter which was 54 in the previous quarter. While we acknowledge the risk and potential of IBM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IBM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.