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IBM's Prospects Bright on Watson's Increasing Popularity

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International Business Machines Corporation’s (IBM - Free Report) cognitive solution platform, IBM Watson, seems to be on a roll. Recently, the company’s artificial intelligence (AI) platform has been adopted by the likes of AT&T Inc. (T - Free Report) , Harry & David, Charlotte Russe and Performance Bicycle.

Notably, AT&T will integrate its own Internet of Things (IoT) solutions with IBM Watson on the cloud to provide its enterprise customers enhanced analytic insights into industrial IoT data.

Also, Harry & David – the leading supplier of gourmet food products and premium class, gift quality fruits – adopted the full suite of Watson Customer Engagement solutions on the IBM Cloud. This should enable the company to let customers zero-in on the perfect gift at the right time.

Similarly, Charlotte Russe, a U.S.-based women’s clothing retailer adopted Watson Customer Engagement solutions on IBM Cloud to streamline its order fulfillment process, boost profitability as well as ascertain customer satisfaction.

These apart, Performance Bicycle and Titan Company Limited, a leading manufacturer of watches and other personal accessories in India adopted the Watson Customer Engagement solutions on the IBM Cloud.

Cognitive Solutions Driving Top-line Growth

We note that, IBM has been moving away from its traditional businesses to newer (read lucrative) business avenues like cloud and data analytics. During the last reported quarter, Cognitive Solutions (solutions software and transaction processing software) revenues grew 1.4% (up 2.2% at constant currency) year over year to $5.30 billion.

In 2016, IBM’s strategic imperatives (cloud, analytics, mobility and security) revenues increased 13% (up 14% at constant currency) year over year. Cloud revenues surged 35% year over year to $13.7 billion.

We also note that IBM continues to expand Watson product offerings. During the last quarter, the company introduced new applications like the Watson Data Platform, Watson Discovery Service and trade surveillance for Financial Services. Further, the company added new cognitive capabilities for conversation to Watson.

Per the recent IBM Investor Briefing 2017, IBM estimates the market for IBM Watson on Cloud as a decision making support system to be worth nearly $2 trillion by 2025.

What Does this Mean for IBM?

Per an IDC report, worldwide spending on cognitive systems and artificial intelligence is expected to be over $47 billion by 2020, which is currently growing at a CAGR of 55.1%.

Given the huge opportunity the sector has to offer, the company faces stiff competition from major players like Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Apple.

However, we believe that IBM is well positioned to brave the headwinds due to the ongoing adoption trend for Watson cloud. We believe that the increasing popularity of Watson cloud bodes well for the company in the long run.

We note that the growing adoption trend of the Watson platform has helped IBM outperform the S&P 500 in the last one year. While the stock has gained 18.2%, the S&P 500 Index has registered an increased 15.3% in the same period.


Zacks Rank

At present, IBM carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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