IBM’s identity is shifting from boring mainframe computers to fast-growing artificial intelligence as the 113-year-old company doubles down on AI.
At its IBM Think conference on Tuesday, CEO Arvind Krishna unveiled a host of new AI products and services in a bid to grow its generative AI operations, which he said had turned into a $6 billion business.
At its core, IBM helps companies adopt AI technologies, create their own agents based on proprietary data, and link together various AI agents from other software providers.
And analysts think it’s just getting started.
“Arvind, he’s in the process of doing a Microsoft-like transformation,” the Wedbush analyst Dan Ives told Business Insider on Wednesday. “It’s still the first inning in a nine-inning game.”
Ives said IBM’s transformation into an AI company was rooted in its $34 billion acquisition of the cloud services provider Red Hat in 2019, but it wasn’t until Krishna took over as CEO in 2020 that IBM jump-started its AI efforts.
“It was really once Arvind took over as CEO that started, that got the engine started, and I think especially the last year, you’ve seen acceleration,” Ives added.
IBM’s shift to AI is paying off. The stock is up 14% year to date, significantly outperforming the Nasdaq 100’s decline of 5%.
Ives said part of IBM’s strength was that it had built an open-sourced foundation for its AI efforts, allowing it to be flexible in integrating different AI solutions for its customer base.
In addition to growing its revenue, AI is also helping grow IBM’s profits because of significant cost savings, amounting to $3.5 billion annually over the past two years.
Ives highlighted that IBM’s increase in productivity, unlocked by AI, had helped the company increase its profit margins by 5 percentage points.
“The company has saved 250K-plus hours due to its AI investments,” Ives said, adding that he was turning “incrementally more bullish” on the stock going forward.
Wedbush rates IBM at “Outperform” with a $300 price target, representing potential upside of 20% from current levels.