IBM Stock and Watson Will Take Over the World

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International Business Machines Corp. (IBM) is still thought of by many as an old-school technology stock that is behind the times, relying on bloated corporate IT departments to tally sales.

ibm earnings stockIBM stock, though, is increasingly becoming a major player in the “disruptive” technologies of the 21st century, particularly with its Watson artificial intelligence projects.

Consider that IBM recently acquired medical imaging company Merge Healthcare (MRGE) for $1 billion to bolster its healthcare applications for Watson. (As an aside: I touted Merge stock in February as one of the best cheap stocks to buy, and after a buyout premium that roughly doubled the value of any investment, I hope you took my advice!)

These kind of strategic moves by IBM ensure that it will stay dominant, and that IBM’s Watson business will continue to push the boundaries of what software and technology are capable of.

Yes, IBM stock has been challenged in the short term. Shares are off about 16% in the last 12 months despite roughly 9% gains for the S&P 500 in the same period. But weak revenue and anemic profit growth in the present shouldn’t be confused with the long-term vision and potential of IBM.

That’s why Warren Buffett, who is a huge shareholder of IBM stock via Berkshire Hathaway (BRK.A, BRK.B), recently said he loves it when the tech giant declines because it’s an opportunity to add to this long-term play.

Now, if you’re in it for next quarter, then IBM may not have the pop you’re looking for. Plenty of highflying tech companies have the momentum and hype necessary to post a big gain in short order.

But IBM is not supposed to be one of these money-losing start-ups that trade wholly on sentiment. This is an entrenched player with a 3.3% dividend yield and a $150 billion market cap.

I find comfort in this kind of scale and a strong balance sheet versus the latest Silicon Valley fads that are here today and gone tomorrow.

And continued efforts to expand Watson’s capabilities should reap even bigger rewards down the road. Moves like the Merge acquisition and a partnership with CVS Health (CVS) will give IBM a foothold in the ever-growing field of healthcare technology.

Beyond healthcare, the capabilities of Watson to deal with big data and analytics have applications in a host of other industries, from predicting sales trends to monitoring audience behaviors for media companies.

The future is undoubtedly in the hands of the most innovative tech companies. And while IBM stock seems like a laggard when you compare this stodgy old brand with the newest tech players like Apple (AAPL) and Google (GOOG, GOOGL), investors would be wise not to count out IBM and Watson just yet.

And when you get a 3.3% dividend just for hanging on, it makes it all that much easier to be patient for the long-term potential of IBM stock to finally pay off.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/ibm-stock-watson-merge-buffett/.

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