We recently compiled a list of the 10 Trending AI Stocks on Investors’ Radar. In this article, we are going to take a look at where International Business Machines Corporation (NYSE:IBM) stands against the other AI stocks.
The US is struggling to keep its technology within its borders, a goal that the US government and most of the country are determined to achieve to maintain dominance, particularly in AI. In this regard, ChatGPT maker OpenAI has recently complained that its competitors, including those in China, are using its work to advance in developing their own artificial intelligence (AI) tools.
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Bloomberg reported that Microsoft, a major investor in OpenAI, is currently investigating whether any data belonging to the AI startup has been used in an unauthorized manner. White House “AI and crypto czar”, David Sacks, seems to agree with OpenAI’s allegations. Sacks suggested that DeepSeek may have used OpenAI’s models to get better, a process known as knowledge distillation.
“There’s substantial evidence that what DeepSeek did here is they distilled the knowledge out of OpenAI’s models. I think one of the things you’re going to see over the next few months is our leading AI companies taking steps to try and prevent distillation… That would definitely slow down some of these copycat models.”
-David Sacks
Nevertheless, DeepSeek’s AI models demonstrate how previous sanctions and export controls by the US have failed to curb competition. Investment firm Morgan Stanley, speaking of the broad market reaction on Monday following the emergence of DeepSeek’s cheaper and more efficient AI models, stated that the consequence may be a reduced spending interest or even tighter export controls.
“The DeepSeek release highlights evolutionary innovations in AI, some of which may be deflationary. That said, the stock market reaction is probably more important than the cause and could bring further export controls or reduce spending enthusiasm”.
It must be noted here that the technology behind DeepSeek’s r1 model Wall Street is raving over isn’t new, but what is surprising is the claim that it has been developed cheaply, and also using less powerful chips.
“The takeaway is that there are many possibilities to develop this industry. The high-end chip/capital intensive way is one technological approach. But DeepSeek proves we are still in the nascent stage of AI development and the path established by OpenAI may not be the only route to highly capable AI.”
-Xiaomeng Lu, director of Eurasia Group’s geo-technology practice.
That said, the road ahead for AI development looks enticing, and AI scientists broadly agree that these new developments are a positive step for the industry as a whole.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 56
International Business Machines Corporation (NYSE:IBM) is a multinational technology company and a pioneer in artificial intelligence, offering AI consulting services and a suite of AI software products. On January 29, the company saw its shares rise as much as 10% after it reported a Q4 earnings beat. The company’s adjusted earnings per share (EPS) of $3.92 outperformed analyst expectations of $3.78. However, revenue was $17.55 billion, slightly missing the estimate of $17.56 billion. The company’s software segment saw the biggest jump in five years. This is largely because customers have been prioritizing spending on cloud infrastructure in a rush to adopt the data-intensive generative artificial intelligence technology.
The company also forecast revenue growth of at least 5% at constant currency for fiscal 2025, reflecting confidence in its AI and cloud strategy. IBM’s consulting business, which accounts for about 80% of IBM’s AI book, fell about 2% to $5.2 billion in the quarter. This is because the companies who have focused spending on longer-term consulting deals to integrate AI in their business are yet to reflect in IBM’s revenue. Like Meta, IBM also talked about DeepSeek. Addressing the launch of its AI models, IBM Chief Financial Officer James Kavanaugh told Reuters that “DeepSeek was an initiation that open (source) AI can play a role in the overall GenAI space”. However, it is unclear whether IBM plans to offer DeepSeek’s models on its Watsonx platform.
Overall IBM ranks 6th on our list of the trending AI stocks on investors’ radar. While we acknowledge the 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 is originally published at Insider Monkey.
