Analysts at Bank of America (BofA) have reiterated their ‘Buy’ rating and US$160 price target for International Business Machines Corp. (NYSE:IBM) on the strength of the technology company's artificial intelligence (AI) offering watsonx.
IBM’s shares traded at about US$141.50 on Thursday afternoon.
“We believe the turnaround at IBM (revenue growth and free cash flow improvement) will continue,” the analysts wrote.
“The company has a defensive portfolio, attractive dividend yield and an underappreciated AI portfolio.”
They noted that IBM’s watsonix was different from its “old Watson,” with a focus on enterprise AI and providing foundation models that make deploying AI easier.
“While the old IBM Watson was more programmatic, watsonx has been designed to work with Large Language Models (LLMs) and offers enterprises foundation models (pre-trained) which make deploying AI significantly more scalable and affordable. watsonx helps Enterprises quickly train and deploy custom AI capabilities while retaining control of their data,” they wrote.
“Enterprises can choose a foundation model either from an IBM curated list, open-source models or use their own models.”
They forecast AI impacting IBM’s revenues in its Consulting business first.
“If we assume a revenue trajectory similar to that of hybrid cloud (OpenShift) in Consulting, AI could add $1 billion/$2 billion of Consulting revenue for fiscal 2024 and 2025,” they wrote.
“AI impact on Software revenues could be similar to the trajectory of Red Hat (NYSE:RHT) revenue growth (doubled each year for first four years). AI revenue in Software can reach $100 million annual recurring revenue exiting 2024.”
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