Within the growth technology sector, the sector that has taken off most this year has been artificial intelligence (AI). You may be wondering whether this is another investment stock mania or a long-term opportunity. I think it’s both, and International Business Machines (IBM) should capitalize, advises Carl Delfeld, editor of Cabot Explorer.
Artificial intelligence – a field of computer science that focuses on building software for machines to perform intelligent tasks like and even better than humans – or what I call inhuman intelligence – is a disruptive development that’s potentially more powerful than the internet or electricity. BCA Research believes that AI could boost economic growth by 30X to 100X, roughly comparable to the impact of the agricultural or industrial revolutions.
There is opportunity here and one way to invest is to try to find the new companies in the AI space that will emerge as winners in this competitive space. Lots of risk and lots of chances for big gains.
A more conservative strategy is to invest in a blue-chip tech stock that supports AI, especially if this move is not yet recognized by the market. That’s where IBM fits in. Known as “Big Blue,” the company now primarily helps businesses and governments manage their information technology in the cloud era.
IBM does not sit on its reputation. About 6% of its revenue is poured into intensive research and development. This firepower yields thousands of patents each year as the company masterfully leverages its global network of staff and nine research labs. IBM is now an active player in 170 countries and sales to emerging markets have boomed.
Getting back to artificial intelligence (AI), consider that the world now creates astronomical amounts of data each day. AI is the only way to effectively process and use all this information. It enables computers, robots, and other connected devices to instantly share information and copy human perception, learning, and problem-solving. This allows machines to independently perform specific tasks with increasing accuracy.
It can be argued that IBM is already the world leader in AI. It has been working on applications in this field for more than four decades and has deeper AI knowledge than virtually any company. Its supercomputer Deep Blue beat world chess champion Gary Kasparov in a six-game match in 1997.
Recently, IBM launched an all-new version of Watson – called watsonx – to help customers create AI applications of their own, to squeeze more value out of their data.
The stock sells for about 14 times projected earnings for the next 12 months while the S&P 500 multiple is 19 and the information technology sector’s forward earnings multiple is 27. IBM also has a dividend yield just over 5% and the company has paid a dividend every quarter since 1916.
Recommended Action: Buy IBM