Last week I touted International Business Machines Corporation (NYSE:IBM) as one of the new “tech elite.” Although its slow migration into something far more relevant than it was just a few years ago doesn’t mean IBM stock is immune to painful setbacks, by and large this is a technology company with a viable future.
In retrospect though, I kind of wish I had waited to cheer IBM. It unveiled an AI-backed digital assistant in the meantime that, if nothing else, is head-turning.
Don’t misread the message. Amazon.com, Inc. (NASDAQ:AMZN), which makes the popular Alexa-powered Echo, has nothing to worry about. Neither does Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), which is miles behind the Echo in terms of market share.
Indeed, IBM’s digital assistant isn’t even built for the consumer market. It’s targeting business uses. As such it will likely command a higher price, and will likely sell in smaller numbers.
Nevertheless, this product is yet another example of what I was talking about a week ago, when I said IBM finally “gets it.”
Introducing Watson Assistant
The short version of a long story: IBM essentially missed the advent of cloud computing. That’s why, up until the final quarter of 2017, it had logged 23 consecutive quarters of declining year-over-year revenue. It wasn’t a permanent affliction though.
Slowly but surely ol’ Big Blue has embraced the new era of technology, launching several new products and services that not only make good use of the cloud, but leverage its existing — and respectable — work in the artificial intelligence arena.
Yes, that’s Watson… the same supercomputer that’s a whiz at TV game show Jeopardy. Though its more practical uses have been a little more hit and miss, there’s no denying it’s got its strengths.
The most recent use of the AI platform is one IBM stock holders can get excited about, as it’s an idea that’s got less theoretical, more practical use — serving as the engine of a business-minded assistant. It may not be able to play your favorite tunes using your Pandora account, but it can act as the voice-based customer service agent for a company.
The Munich Airport and the Royal Bank of Scotland already use Watson Assistant in that capacity, and a version of it has been built from the ground up to serve as the brains of a vehicle’s in-dash computer interface.
The twist? You’re not talking to Alexa, or Siri, from Apple Inc. (NASDAQ:AAPL). You’re not even talking to Watson, as far as you can tell. You’re talking to each organization’s unique version of Watson, taught to do what that company needs done.
The other twist: International Business Machines never even sees, let alone processes, any of the data that’s gathered or created by the organizations that use Watson as the foundation for their very own AI-powered assistant. As Bret Greenstein, IBM vice president of Watson IoT, put it:
“IBM’s business model is that clients own their own data. It is our objective to help our clients get value from that data to learn more about their users, but it is entirely their data, so we don’t monetize or own that data. Data privacy is essential.”
What it Means for IBM Stock
It’s not a game-changer, to be clear.
In other words, don’t plan on a revenue or profit explosion for IBM stock for the quarter currently underway, or even next quarter when would-be customers know more about Watson Assistant… mainly because it’s still in beta testing.
The adoption curve is sure to be a shallow one, with many companies still not quite sure of how they can best utilize technology, or the information they could be and should be creating.
Morningstar analyst Rodney Nelson opined:
“I don’t think there’s necessarily anything in these announcements that drastically change the competitive landscape. The major cloud vendors are flooding the market with new features on a consistent basis… all have moderate to major leads on IBM in that regard.”
Give it time, however. AI is the future, and hands-free and coding-free use of data is the future as well.
More than anything though, current and would-be owners of IBM stock can view the advent of Watson Assistant as another piece of evidence that the company is finally thinking like it’s 2018 rather than 1998. That’s what investors, and its customers, have been waiting on.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
