Why Wall Street Is Completely Wrong About IBM

Nanalyze
Nanalyze
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Published 2024-01-29
IBM stock has performed poorly over the years as the company's two key metrics - revenue and free cash flow - stagnate. That's all water under the bridge as IBM has reinvented themselves now with (checks notes) yet another pivot into AI. IBM's AI creation Watson is now watsonx, and that subtle name change is supposed to make us forget about the Watson Health disaster. Based on comments in the latest earnings call, generative AI and Watson brought in $400 million in revenues last quarter, but that will be recognized over 12-24 months. In the meantime, the "Data and AI" revenue segment grew just 5% last year. IBM is no AI stock, but they are forecasting $12 billion in free cash flow next year which saw their share price hit 10-year highs. Now maybe they can start growing that dividend a bit more than just the paltry 1.3% we've seen over the past 5 years. Here's to hoping we're wrong about IBM's AI success story being all dough and little show.

RESEARCH PIECES USED IN THIS VIDEO:
1. IBM and Red Hat – WTF is a Hybrid Cloud?
www.nanalyze.com/2018/10/ibm-red-hat-hybrid-cloud/
2. Investing in Cloud Computing. Any Growth Left?
www.nanalyze.com/2023/04/investing-cloud-computing…
3. Making IBM Great Again With Artificial Intelligence
www.nanalyze.com/2020/07/ibm-artificial-intelligen…
4. What Do IBM Mainframe Computers Look Like Today?
www.nanalyze.com/2017/10/ibm-mainframe-computers-t…
5. IBM Stock Review | Finally a Turnaround
   • IBM Stock Review | Finally a Turnaround  

CHAPTERS:
00:58 Is IBM growth or value?
02:52 IBM's two key measures of success
03:45 How safe is IBM's dividend?
05:29 The Watson Health disaster
06:59 IBM emerges as an AI stock.
09:04 Consulting or Enterprise AI SaaS?
11:18 Concluding thoughts on IBM
12:21 A better dividend tech stock

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All Comments (8)
  • @factotums
    I was a big IBM/Watson fan almost ten years ago now. I would be the annoying guy talking about how they were going to make perfect weather predictions and could solve medical diagnoses better than a board of physicians (I also read that article about their health sector getting scrapped, it depressed me) and The Weather Channel, or their app, used to say 'Powered by Watson', now it just says 'An IBM Company' so so much for branding. Also NVIDIA is building some massive generative model of the entire earth, called Earth-2, which they claim will take an entire warehouse of processors, so there goes Watson's weather simulation. I guess the point is that I feel like an idiot for holding it so long but I eventually sold this year, ironically when a lot of people finally took notice. But I think it is too little too late. Great video.
  • @ConsistentlyAwkward
    Great Analysis would love to see a follow up report after Q2 is reported, their business model is different this time around they are more of a provider for artificial intelligence instead of the end product so i think it’s slightly more risk adverse i’m still bullish on IBM because of how much experience their chip division has especially when it comes to Artificial Intelligence they are one of a handful of companies that can have a competitive product (hardware) versus nvidia and have software that’s tailored for said hardware in one stop shop service that’s less ricky than trying to sell an end product.