International Business Machines stock has seen a significant rise as the market warms up to the potential of artificial intelligence. It has gained a new fan in Evercore analyst Amit Daryanani, who believes the “chaotic” deployment of AI is good news for IBM, even as other commentators turn cautious.
IBM shares rose 1.9% to $170.08 on Friday. The stock is up 20% over the past 12 months and is at its highest levels since 2017, when it peaked at around $175. If it rises a little more, it will reach prices that have not been reached since 2014.
The Evercore analyst believes the AI rollout could help the stock get there. He raised his rating on IBM shares to Outperform from In Line and increased his price target to $200 from $165.
The key, Daryanani says, lies in the “complex and messy” implementation of AI tools, as companies look to keep their data secure, meaning they can’t put it directly into public AI models.
IBM has avoided consumer-facing AI applications such as chatbots backed by Microsoft and Alphabet, Google’s parent company. Instead, it has positioned itself as a partner for businesses looking for a secure way to experience technology, via its WatsonX platform.
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“IBM, with its unique set of consulting and software assets, can help solve this bottleneck and enable enterprise customers to deploy AI tools inside and outside the company more seamlessly,” Daryanani wrote in a research note. “Therefore, we believe IBM is an overlooked beneficiary of increased AI adoption.”
It’s not a strategy that’s won over everyone on Wall Street. Jefferies analyst Brent Thiel recently noted that the company’s software business is still growing at a slower rate than its peers, saying IBM may struggle to achieve a higher valuation if its lower-margin consulting business dominates its AI growth. He put a hold rating on the stock with a $180 price target.
Evercore’s Daryanani also expects the AI boost to appear in IBM’s consulting business first, but he doesn’t see that as a drawback. He says the company’s consulting and software segments should benefit over time.
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“Any kind of initial AI contribution will have to appear on the consulting side…and in the long term we believe AI could be a billion-dollar consulting practice for the firm,” he wrote.
The division among analysts reflects differing views on Wall Street. Among 20 analysts covering IBM tracked by FactSet
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Seven of them rated the stock at Buy or equivalent, while nine of them rated it at Hold ratings. Four advise selling.
Baron He wrote favorably about IBM’s AI plans last year, although the stock’s rise has reduced its dividend yield from more than 5% at the time to about 4% now.
Write to Adam Clark at adam.clark@barrons.com