Is IBM the Next Hot AI Stock? This Analyst Says Watson X Software Is Company’s Most Promising New Product In Years.

“Watson X is the most promising new, organically developed software product IBM has launched in years,” MoffettNathanson analyst Lisa Ellis wrote in a research note following the earnings report. He thinks Watson X will be “a new blockbuster for IBM,” surpassing Red Hat’s hybrid cloud platform.

Krishna said that in the first 10 days of availability, the Watson X software has been deployed to more than 150 clients, including Samsung, Citi, and NASA. As Ellis said, IBM has no plans to offer a general-purpose chatbot like ChatGPT. Instead, IBM is focused on meeting business AI needs, including data privacy, integrity, and governance.

IBM is not new to AI: Big Blue has been working on artificial intelligence software longer than almost any other company on Earth. You may recall that IBM’s DeepBlue chess playing supercomputer beat world champion Garry Kasparov in a 6-game match in 1997, more than a quarter-century ago.

And yet, while this year’s market fell on almost every AI-related stock imaginable in the first half of the year, IBM was largely absent from the party: Shares are down 1% so far this year. Compare that to Nvidia (NVDA), at 214%, Microsoft (MSFT), at 45%, and Alphabet (GOOGL), at 36%.

as said Barron Previously reported, Watson X has three parts: Watson.ai works with customers to create new models, or data sets. Watson.data acts as a data store, which puts the company in competition with Snowflake (SNOW), among others. And Watson.governance monitors AI models to ensure they are accurate and accountable, not full of false or harmful information.

“There are endless potential use cases for generative AI models in a business context,” writes Ellis, “such as augmenting HR, performing predictive IT maintenance, assisting with financial forecasting, conducting fraud detection, compliance monitoring, risk management, and supply chain optimization, among others.”

He said he sees the potential for generative AI to “transform a wide range of business processes, from industry-specific use cases, such as drug discovery, to use cases, such as software coding or call center operations.”

Krishna talked extensively about the potential for Watson X on the company’s earnings call. “Large language models are a step change in the evolution of AI, with more than 80% of businesses exploring their use,” he said. “We believe that the opportunity for large-scale language models for businesses is huge due to the current volume of business data. This includes sensor data, chemistry data, materials data, geospatial data, code, and of course, speech.

Ellis maintained his Market Perform rating and $145 price target on IBM shares. After posting better-than-expected profit for the second quarter, IBM stock on Thursday rose 3.2%, to $139.75.

Write to Eric J. Savitz at eric.savitz@barrons.com