Sure would love to bet against this guy's play. . .
[Only excerpted from the article the portion on IBM]
https://www.barrons.com/articles/where-to-invest-100k-right-now-cc6d6361
Updated Oct 18, 2023, 1:00 pm EDT / Original Oct 13, 2023, 1:00 am EDT
With stocks well off their 2023 highs, bonds down for the year, and investors hanging on the Federal Reserve’s every word, it can be tough to decide where to invest new money. To help out, we’ve asked some of Barron’s top writers to share their best ideas. (Barron’s policy prohibits writers from investing in industries they cover.)
For this special report, we asked each writer to envision an investor who has a few million dollars in a well-diversified portfolio and then comes upon an extra $100,000 to invest. These are our best ideas for your next $100,000, not your first $100,000. These aren’t “play money” gambits. They are sound investment ideas for serious investors.
IBM Is an AI Play
By: Eric J. Savitz
Amid 2023’s mania for stock plays on the generative artificial intelligence trend, investors have overlooked one that is arguably among the most compelling plays on both AI and cloud computing: the 112-year-old tech giant IBM (IBM).
Almost two years ago, I wrote a cover story for Barron’s on the outlook for Big Blue, asserting that the company was showing signs of a turnaround after a decade of shrinking revenue. The catalyst was the 2020 decision to elevate Arvind Krishna to CEO, replacing Ginni Rometty, who retired from the top job after an eight-year run. IBM shares have appreciated 53% with Krishna at the helm, but there should be further gains ahead.
When Krishna took over, he refocused IBM on two areas: hybrid cloud computing and artificial intelligence. Krishna was talking about AI long before OpenAI launched ChatGPT in November, triggering the tech sector’s current obsession. And IBM’s AI roots run deep: It was more than a decade ago that the company’s Watson AI platform appeared on Jeopardy and crushed the game’s best players.
Meanwhile, Krishna took steps to streamline IBM’s business, including spinning out the company’s low-margin managed services business as an independent public company called Kyndryl. He also sold the Watson Health business, which had focused on applying AI to healthcare end markets, a move that confused some investors into thinking IBM had given up on AI entirely.
But IBM has doubled down on AI, with a new platform introduced this year called WatsonX. The new plan is to provide large language models and other AI tools to key IBM vertical markets, like financial services and manufacturing. BofA Securities analyst Wamsi Mohan explains that WatsonX is designed to help customers “quickly train and deploy custom AI capabilities while retaining control of their data.” His view is that IBM has “an underappreciated AI portfolio,” and I think he’s right.
IBM has no interest in producing a general-purpose large language model along the lines of those from Alphabet (GOOGL), OpenAI, Meta (FB), and others. Krisha sees public-facing AI apps as just a small portion of the opportunity. “It’s like an iceberg,” he told me in June, with chatbots such as Microsoft Bing and Google Bard above the waterline. “There are more use cases that are not going to benefit from a large public model.”
IBM shares are dirt cheap, at about 14 times estimated 2024 earnings and about two times projected sales—and they have one of the highest dividend yields in the tech sector, at 4.7%. The stock this year is about flat, sharply underperforming the broader market. It doesn’t require artificial intelligence to see the appeal here—just old fashioned investor smarts.