So far this year, artificial intelligence (AI) garnered tremendous popularity, buoyed by chatbot platform ChatGPT. However, the sector commands significant risks due to the freshness of the innovation. For a less-stressful AI investment, market participants should target IBM (NYSE:IBM). Not only does it quietly command significant AI relevancies, but IBM also offers a proven business and a strong dividend. I am bullish on IBM stock.
Fundamentally, the case for any AI-related investment centers on burgeoning demand. According to Grand View Research, the global AI market reached a valuation of $136.55 billion in 2022. Analysts at the firm project the sector expanding at a compound annual growth rate (CAGR) of 37.3% from 2023 to 2030. At the culmination of the forecasted period, the segment may command revenue of more than $1.81 trillion.
To put this estimated figure into perspective, the global AI market may reach a higher valuation than the current GDP of Canada (which is just over $1.6 trillion). Further, as use cases for AI applications expand dramatically over the years, the segment will likely continue expanding. The same can’t be said about all nations, many of which face declining population rates.
Further boosting the case for IBM stock generally, Forbes reported earlier in February that a “Deloitte study recently found that over 50% of organizations are planning on incorporating the use of AI and automation technologies in 2023.” Thus, large-scale AI and machine learning (ML) initiatives such as IBM Watson will likely garner tremendous interest.
However, IBM stock could really jump to the forefront based on its virtual agent technology.
Automation for the Simple (and Even Difficult) Tasks
According to IBM’s website, virtual agent technology (VAT) “refers to the deployment of automation that uses a combination of artificial intelligence (AI) technologies or capabilities like machine learning, natural language processing, natural language generation, sentiment analysis, language translation, speech-to-text, robotic process automation (RPA), and optical character recognition (OCR) to automate dialogue, and in some cases backend process steps, to serve end users.”
In other words, VATs provide automated services and/or guidance to human users. Fundamentally, IBM stock stands to benefit richly because it emerged as a leading service provider in this market. Moreover, the tech giant’s research revealed that 99% of survey respondents reported an increase in customer satisfaction as a result of using VAT. However, 90% of companies report difficulty scaling AI protocols to meet their needs.
Here, IBM’s unique methodology promotes AI and ML systems that align with an enterprise’s specific architecture, in part by building such systems via a pilot-to-production framework. As well, the company provides conversational AI services, an innovation that’s only leaping in popularity.
Moreover, economic realities should bode very well for IBM stock. Throughout 2022 and possibly for this year as well, the Federal Reserve spiked the benchmark interest rate to historic highs. In turn, the associated rise in borrowing costs depleted sentiment in certain sectors, particularly the tech space. Not shockingly, then, mass layoffs in the segment accelerated sharply.
As a consequence, fewer enterprises have the resources to hire humans to handle all customer service needs. Therefore, the harsh economic environment should lift relevancies for VATs, in turn driving demand for IBM stock.
IBM Stock Offers a Quiet but Reliable AI Investment
While IBM stock admittedly doesn’t generate the raw excitement associated with AI upstarts, the legacy enterprise provides greater confidence. Founded in 1911, it’s been around the block more than a few times. As well, it has the goods to keep chugging along.
Perhaps most noticeably, IBM enjoys solid profitability. For instance, its operating margin stands at 13.5%, outpacing 79.8% of its rivals. Also, the company features a return on equity of 8.7%, above 62.65% of the competition.
Even better for prospective investors, IBM stock offers a passive income opportunity. At writing, the underlying firm carried a forward yield of 4.9%. In contrast, the tech sector’s average yield sits at only 1.37%. Plus, IBM commands 29 years of consecutive dividend increases, making it a Dividend Aristocrat.
Is IBM Stock a Buy, According to Analysts?
Turning to Wall Street, IBM stock has a Hold consensus rating based on three Buys, seven Holds, and one Sell rating. The average IBM stock price target is $143.56, implying 6.32% upside potential.
The Takeaway: IBM Stock is the AI “Sleeper” Play
In street racing parlance, a sleeper represents a car that looks mundane and unimpressive. However, it’s a type of vehicle that lets what’s under the hood do the talking. The same could be said about IBM stock.
No, it’s not the sexiest investment out there – not by a long shot. However, it features an incredible library of AI and ML-related protocols. Also, it pays you to buy it. Under this economy, it’s difficult to ask for much more.
