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IBM’s Focus on Watson Could Be Its Highlight of 2016

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Watson is IBM’s long-term strategy to reap growth

Previously in this series, we touched on IBM’s (IBM) expected fiscal 4Q15 results, as well as various factors that impacted its performance in 2015. However, IBM continued its transition toward the cloud space through investments, acquisitions, and partnerships. Apart from IBM’s Strategic Imperatives initiative, Watson continued to generate news in 2015.

IBM has made considerable effort to promote its AI (artificial intelligence) and cognitive computing software known as Watson, as well as the partnership that Watson made in the recently concluded Consumer Electronics Show (or CES) 2016. Based on these high-profile events, Watson seems to hold promise. At CES 2016, IBM’s CEO, Ginni Rometty, stated that Medtronic (MDT), Under Armour (UA), and SoftBank Robotics use Watson in varied ways.

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IBM targets big data via Watson

IDC expects big data to become a $41.5 billion market in 2018. According to IDC: “By 2020 IDC believes that line of business buyers will help drive analytics beyond its historical sweet spot of relational (performance management) to the double-digit growth rates of real-time intelligence and exploration/discovery of the unstructured worlds.” Through Watson, IBM intends to target this market. However, open source technologies like Hadoop pose a threat to IBM’s Watson.

The popularity of Hadoop and NoSQL has made technology companies like Microsoft (MSFT), Oracle (ORCL), IBM Corp,, EMC (EMC), and Teradata Corp. (TDC) incorporate them into their own platforms.

This could be a reason that IBM’s acquisition strategy is focused on open source. IBM’s 2015 acquisition of Compose and Strongloop was intended to expand its foothold in the enterprise app development space. Please read Open Source Continues to Get Attention from Technology Players for more information.

Investors who wish to gain broad-based exposure to IBM can consider investing in the iShares US Technology ETF (IYW). IYW has an exposure of 46.7% to application software and invests ~12.5% of its holdings in IBM.

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