IBM’s Redemption Arc: Charting a Comeback with WatsonX and AI

Once upon a time (way back in the 60s), every techie dreamed of working at IBM — the golden standard of PCs. Unfortunately, there’s no happy ending here.

IBM has been developing AI for decades. In 1997, IBM’s supercomputer Deep Blue defeated a world chess champion — and in 2011, IBM’s Watson beat one of the best Jeopardy players.

But IBM made a series of failed strategic moves. Between 2010 and 2020: Its stock price was flat, and IBM lost 33% of its sales and saw 22 straight quarters of revenue declining within that period.

In 2020, IBM brought in a new CEO, Arvind Krishna — prioritizing the company towards the hybrid cloud and AI. And he’s not shy about using AI. Krishna said IBM would replace 8K jobs with AI earlier this year.

What does the next decade look like?

$IBM is down 3%, while seemingly every big tech giant is up this year. But last month, IBM announced WatsonX — its AI platform for enterprises.

In a Barron’s interview, Krishna said that IBM isn’t planning to build a general large language model like ChatGPT.

• Instead, it’ll work with customers — who don’t want their data shared publicly — to build private models for specific use cases.
• Example: IBM could help a chemical company build a chemistry model with private data to derive new formulas.

In the past two years, IBM finally returned to growth — a sign that it’s finally turning around. At its current 14.3x price-to-earnings ratio, it’s much cheaper than other big tech giants. Don’t forget its 4.8% dividend yield.