![]() ![]() ![]() IBM is taking its sweet time cementing the foundation of an incredibly lucrative AI business, and I don't mind that at all. So the impressive volume of AI orders coming down IBM's pipeline will look more like a slow groundswell of modest growth in revenues and profits.īut you know what they say about successful investing: It's a marathon, not a sprint. Instead, recurring revenue streams are collected from customers on a monthly, quarterly, or annual basis. Converting firm service contracts (including the modern software-as-a-service approach to software licenses) doesn't result in big lump sums on the income statement right away. Slow and steady wins the raceĮven now, with AI orders piling up and driving deeper market interest in IBM's Watson and Watsonx solutions, IBM won't become a get-rich-quick stock. Clients can trust those audited analyses more than they would an AI solution that came from a black box the inner workings of which are inscrutable. Thanks to Watson's transparency, a client can audit the analysis and make sure the AI conclusions are based on good data. That's the only way to deliver business-grade insights. IBM also goes the extra mile to explain how its AI systems reach their conclusions. Its solutions are aimed at enterprise-class corporations that have the developer know-how to apply AI analytics and deep learning to their proprietary business data. What makes IBM's AI solutions special?īig Blue isn't building another multipurpose ChatGPT platform. On the upside, there will be large, fruitful, and durable contracts at the end of the rainbow. The company is taking the long way around to this opportunity. So it's not surprising to see IBM's AI wins are coming in a bit late. Moreover, AI platforms can be controversial, slowing down the process even further. Then, the company's IT director may need budget sign-offs from several layers of management. A prospective client must put the new tool through the paces by testing its functionality, security, integration with existing systems, and more. It takes a while to get the necessary John Hancocks on a large, long-lasting software contract. Nothing good is ever free, and there's a significant downside to IBM's tight enterprise focus. Moreover, corporate deals tend to be lucrative, with generous profit margins and side orders of technical support services. Once you win a multiyear contract in this market segment, you'll have a reliable revenue stream for a long time. IBM is all about business-to-business services. Big Blue is happy to let other companies fight among themselves to cater to fickle consumer tastes. This level of patience also applies to IBM's day-to-day operations. It's like an oil tanker making a U-turn in San Francisco Bay - a slow operation requiring great care. ![]() Pointing such a huge business in a new direction takes time and patience. A B2B focus demands patienceĪt this point, IBM has spent more than a decade whittling itself down from its former one-stop-shop approach into a sleeker, more efficient bundle of high-growth operations. It may have been a bit late to Wall Street's AI party, but I expect a massive growth spurt from this tech sector stalwart. The success story so far is the tip of a much larger iceberg. IBM's commitment to AI is starting to pay off, and the company's AI-powered, cloud-based growth story has only just begun.
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