A Supercomputer Could be a Catalyst for IBM Stock
The latest market reports for International Business Machines Corporation (NYSE:IBM) have not been kind following the tech giant’s underperformance with a fifth straight higher-than-expected quarterly decline in revenue. The company has felt the pain of a surging U.S. dollar, and IBM stock fell sharply following the underwhelming third-quarter results, as the company slashed its profit forecast for 2015.
While market analysts and investors alike may be pessimistic about the company’s near-term performance, there’s hope at the end of the tunnel because IBM stock could soar on the back of its one big development in cloud computing.
But before diving in to that, I think it’s important we take a good look at IBM’s latest financial performance, and why it’s not quite as bad as some would have you believe.
IBM Stockholders Not Impressed by Results
It’s of course true that IBM has now posted 14 consecutive quarterly reductions in revenue. The latest corporate restructuring efforts have focused on eliminating business segments with lower profit margins, while aggressively expanding its highly profitable cloud computing endeavors which help businesses access data remotely. (Source: “IBM revenue falls more than expected; cuts full-year profit forecast,” Globe and Mail, October 20, 2015.)
The company had lowered its 2015 forecast for operating profit to the $14.75 to $15.75 per share range, down from an earlier forecasted ranged of $15.75 to $16.50 a share. Analysts, for their part, were expecting earnings to be in the range of $15.68 according to a report from Thompson Reuters.
The tech giant is now focusing more strategically from hardware-oriented segments to its cloud computing ventures. (Source: “IBM’s Results Reflect the Challenge of Turning Around a Tech Giant,” Bloomberg, October 19, 2015.) This follows broader trends by cloud computing rivals such as Microsoft and Oracle. All of them are attempting to compete with cloud operating giants such as Amazon.com and Salesforce.com.
IBM’s revenue from what it refers to as strategic imperatives, including mobile and cloud-based computing, social and security software, and data analytics, rose by a solid 17% in the third quarter of 2015.
Total net income from IBM’s operations dropped to $2.96 billion, which works out to $3.02 a share, down from $3.46 billion, or $3.46 billion per share in 2014. The company’s consolidated income, however, skyrocketed to $2.95 billion, or about $3.01 per share, from $18.0 million, or two cents per share last year.
But IBM has an ace up its sleeve. It’s called Watson, a powerful supercomputer with some dazzling promised abilities. Here’s how this addition to its family could spell a big turnaround for the IBM stock price forecast.
IBM Supercomputer Set to Take Tech World by Storm
It’s at this point that you might be wondering what exactly Watson is. IBM’s supercomputer is part of the company’s strategy to essentially leapfrog the cloud computing competition in terms big data services. Whereas competitors rely on structured data and rules-based computer calculations, IBM is setting its sights much, much higher for Watson.
IBM aims to create a service where Watson will have the ability to ingest massive amounts of information and images from a variety of sources, derive meaning from that data and learn from it, and then render intelligence insights. (Source: “Spending time at IBM Watson,” Fortune, October 16, 2015.) Moreover, Watson has the ability to respond to natural language inquiries, which raises the question of possible future applications towards private educational instruction.
The first target industry for the IBM supercomputer will be healthcare. And there is a great deal of optimism that doctors and researchers will be able to diagnose and treat illnesses using this intelligent computer technology. (Source: IBM Web Site, last accessed October 20, 2015.) Additionally, companies will hopefully have their research and development of medicines and technologies greatly accelerated. IBM then plans on moving on and applying Watson to education, the financial sector, and more broadly “the internet of things.” Small businesses will also have the opportunity to use Watson-derived APIs.
Indeed, artificial intelligence is quickly becoming a central part of consumer technology, with companies such as Alphabet Inc., Facebook, and Microsoft all focusing dedicated research and development groups to furthering their AI capabilities. (Source: “IBM’s Watson lends its artificial intelligence to startups,” CNN Money, October 15, 2015.) Some of the brightest minds on the planet are in fact now focusing their efforts on developing truly intelligent computers, with some dizzying forecasted capabilities. For only the slightest hint at what the future might hold for IBM and its competitors, consider semi-AI services such as Siri and Google photos.
Here’s the Bottom Line on IBM Stock
With a future-oriented strategy based on slimming down its less profitable segments and focused efforts on a promising new supercomputer technology, the IBM stock price forecast could become bullish much faster than you think.