IBM's stock has experienced a remarkable rally as investors recognize the company's potential in artificial intelligence (AI). While some commentators have expressed caution, Evercore analyst Amit Daryanani remains optimistic and sees value in what he describes as a "messy" rollout of AI.
In premarket trading on Friday, IBM shares were up 2.1% at $170.26. Over the past year, the stock has gained 18% and now stands at its highest levels since 2017 when it reached approximately $175. With just a slight increase, it could surpass prices not seen since 2014.
Daryanani believes that the AI rollout will help propel IBM's stock to these new heights. In fact, he has raised his rating on the stock from In Line to Outperform and boosted his price target from $165 to $200.
The analyst points out that the complexity and challenges associated with implementing AI tools work in IBM's favor. Companies are keen on safeguarding their data, which means they are unable to directly incorporate AI models into public systems. This is where IBM shines as a partner, offering a secure environment for companies to experiment with AI technology through its WatsonX platform.
Unlike Microsoft and Alphabet (Google's parent company), who focus on consumer-facing AI applications like chatbots, IBM has positioned itself as a trusted partner for businesses seeking a safe and reliable path to explore AI possibilities.
In summary, as the market embraces the transformative power of artificial intelligence, IBM is capitalizing on this trend. With a strong focus on security and collaboration with businesses, IBM's stock is poised for continued growth and success.
According to a research note, IBM has the potential to tackle the existing bottleneck and facilitate the deployment of AI tools for enterprise clients both on-premise and off-premise. The unique combination of their consulting and software assets makes them a valuable partner in this process. This has led to IBM being seen as an overlooked beneficiary of the increasing adoption of AI.
However, not everyone on Wall Street is convinced of IBM's strategy. Brent Thill, an analyst at Jefferies, highlighted that IBM's software business is growing at a slower rate compared to its peers. He believes that if IBM's AI growth is driven by its lower-margin consulting business, it may struggle to achieve a higher valuation. Thill has assigned a Hold rating for the stock with a target price of $180.
In contrast, Evercore's Daryanani anticipates that IBM's consulting business will be the first to experience the impact of the AI boost. This doesn't concern him as he believes that both the consulting and software segments of the company will benefit in the long run. Daryanani suggests that the initial contribution of AI will become evident in the consulting side, and eventually, AI could contribute up to $1 billion towards IBM's consulting practice.
These differing opinions among analysts illustrate the divergence of views on Wall Street. Out of the 20 analysts covering IBM, seven rate the stock as Buy or equivalent, nine have assigned it a Hold rating, and four advise selling.
It is worth noting that last year, __________ wrote favorably about IBM's AI plans. However, despite the positive sentiments surrounding IBM's prospects, the stock's rally has caused its dividend yield to decrease from above 5% to around 4% currently.
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