Faith in IBM’s Watson is slipping
Despite the several acquisitions that International Business Machines (IBM) used to equip Watson and expand its foray into healthcare, financial services, regulatory compliance, James Kisner, an analyst with Jefferies, still isn’t too hopeful about Watson’s role in bringing relief to IBM’s stock decline.
Kisner noted: “The company missed some opportunities. If they had acquired Salesforce years ago that might have been something they could do,” adding that in the AI (artificial intelligence) space, which is rapidly chased by tech players like Microsoft (MSFT), IBM is viewed as an “expensive solution.”
Jeffries has an “underperform” rating on IBM stock, with a price target of $125. Jeffries’ price target on is 18% lower than IBM’s closing price of $154.08 on July 18.
Though IBM’s Watson has received praise from Warren Buffett in the past, Kisner is of the opinion that Watson won’t be able to do much to help IBM “move the needle.”
On IBM’s fiscal 2Q17 results, David Holt, an analyst with CFRA Research, stated: “Global Business Services backlog stabilization (second-straight quarter of signings growth), revenue contributions from z14 mainframe roll-out (weighted towards 4Q) and abating mix/currency setbacks help provide line of sight towards full 2017 outlook.”
Fiscal 3Q17 expectations
Seasonality is expected to weigh on IBM’s fiscal 3Q17 results. IBM expects a sequential fall of almost $1 billion in its revenue, which is expected to be somewhat reduced by revenue contributions from the new mainframe offering z14 and new services contracts, which are likely to contribute $200 million–$300 million.
IBM expects a growth rate of 10%–11% in its strategic-imperative segment for fiscal 2017 on the back of new signings, its next generation mainframe, and other hardware.