The black sheep of the AI trade

IBM is an old dog trying to learn new tricks.

After paring early losses, the tech stock ended the day down 0.87% following a lukewarm reception to it latest earnings report. IBM not only beat third-quarter earnings and revenue estimates, but also announced that its AI book of business reached $9.5 billion, up from $7.5 billion last quarter—all seemingly good news.

“Clients globally continue to leverage our technology and domain expertise to drive productivity in their operations and deliver real business value with AI,” explained CEO Arvind Krishna in a statement.

But the stock’s dip today seems to indicate a lack of faith from investors. Part of the reason could simply be sky-high expectations, given the stock’s 31% rise year to date before Wednesday’s close. But the company’s cloud software division also raised red flags, according to analysts: Sales in its cloud unit slowed to 14% from the 16% growth it achieved last quarter.

Should you invest in IBM?

So is IBM a new AI favorite that just took a breather—or is today a sign not everyone can pull off a modern rebrand? Management is doing everything it can to keep up with the AI competition: for example, the company cut a deal with Anthropic earlier this month to allow IBM software to access Anthropic’s Claude. And on top of that, IBM has gone all-in embracing this brave new world in every part of its business, even bragging in May that it replaced 200 HR roles with AI.

But it’s still an open question whether or not the century-old company can compete in today’s dog-eat-dog AI era. IBM’s market cap is dwarfed by fellow AI darlings like Nvidia, Microsoft, and OpenAI, and the company brings in far less revenue, critics argue.

Then again, not everyone is counting out IBM. “We continue to believe IBM is well-positioned to capitalize on the current demand wave for hybrid cloud and AI applications as more enterprises are looking to leverage these capabilities across organizational workflows,” explained Wedbush analyst Dan Ives in a note yesterday. “We would be buyers of any modest knee-jerk weakness in the stock.”

As of today, it doesn’t seem like investors are convinced.—LB