IBM has recently topped the Dow Jones Industrial Average as the best-performing stock over the past three months with a notable 27% increase. Despite this surge, concerns remain regarding its approach to artificial intelligence.
Scott Nations, the president and chief investment officer of Nations Indexes, shared his insights on CNBC’s ‘Power Lunch,’ pointing out that IBM’s AI strategy appears lackluster compared to its peers. He expresses a cautious stance, opting to wait and see how IBM’s efforts unfold in a competitive AI market.
IBM’s latest quarterly report revealed revenues and earnings surpassing Wall Street expectations. A significant contribution to their software revenue growth, which rose by 10% to $7.9 billion, came from the demand for AI technologies and their Red Hat Linux operating system. Nevertheless, Nations highlights that worries still persist despite these positive earnings.
IBM is treading a path different from other major players in AI, employing what Nations describes as more of a ‘DeepSeek approach.’ This strategy will need to prove effective over time. The approach is highlighted by a significant moment when China’s DeepSeek announced a powerful AI model developed for just $6 million, drawing skepticism about its cost transparency while altering industry standards by making its technology available for free.
In a proactive move, IBM CEO Arvind Krishna announced securing $5 billion in generative AI business bookings, which encompasses software and consulting sales. Krishna emphasized the company’s global client base turning to IBM for AI transformation, with software experiencing double-digit revenue growth led by Red Hat.
On a related note, Uber has been experiencing a downturn in its stock price following an earnings miss coupled with soft future guidance. However, Nations is seizing this downturn as an opportunity, citing Uber’s commitment to stock repurchases and entry into the autonomous vehicle sector with robotaxi services. Meanwhile, Mattel sees a positive trajectory with a 14% rise in shares after surpassing quarterly earnings expectations, attributed to strategic stock buybacks as a key driver for investor interest.
Although IBM is currently a strong performer on the Dow, its future success in AI remains uncertain. The approach in leveraging AI technologies seems to be a waiting game as IBM distinguishes itself from others with its unique strategy. Investors, like Scott Nations, are vigilantly observing the company’s progress in this dynamic market.
