How Building a Smarter Planet Could Send IBM Soaringhttp://www.fool.com/investing/general/2013/12/17/is-ibms-watson-fools-gold.aspx Karl Hall
December 17, 2013
IBM's (NYSE: IBM) has announced to the world in its new commercials that its mission is to "build a smarter planet." As part of the effort, IBM is using an artificial intelligence program called Watson to jump-start its cloud computing business. But is IBM and Watson smart enough to send its stock price soaring?
IBM stock price has been in a little tailspin since the company beat net income estimates but missed its revenue estimates on October 16. IBM's net income was up 6% to $4 billion, or $3.68 a share, from $3.82 billion, or $3.33 a share, in the previous year's period. Revenue fell 4% to $23.72 billion from $24.75 billion in the previous year's period. Below is a six-month chart of IBM's stock price.
So is there a plausible scenario to buy IBM? Over the last four quarters alone, IBM has spent over $6.24 billion in research and development. That equates to approximately 13% of the company's revenue over the same period. A large part of IBM's research and development dollars have been spent on the quirky artificial intelligence platform the company calls Watson.
I am sure many of you saw the episodes of Jeopardy in May of 2011, where Watson was pitted against the legendary Jeopardy champion, Ken Jennings. The Jeopardy games were actually pretty close and Watson did have some awkward moments. When Watson was given the clue, "Its largest U.S. airport is named for a World War II hero; its second largest for a World War II battle," Watson's response was "Toronto, Canada" The correct response was actually Chicago. Watson ultimately prevailed and won over $1 million on the popular game show. Click here to watch Watson on Jeopardy.
The commercialization of Watson
Watson and cloud computing
And just in case the executive's memories have faded, IBM is now pumping the airwaves and the Internet with advertising espousing the benefits of Watson. In addition, Watson's artificial intelligence technology can be applied to almost every new vertical market and vertical markets sales and marketing is what IBM does best.
The elephants in the room