In the ever-changing world of artificial intelligence (AI), International Business Machines (NYSE: IBM) Big Blue is a staunch pioneer. Big Blue combines a tradition of innovation with a forward-thinking approach to AI development and implementation, yet market makers have yet to wake up to this huge AI investment opportunity.
With a focus on responsible AI, a vibrant consulting business, and strong partnerships, IBM is poised to capitalize on the growing demand for AI solutions while delivering solid returns for investors. It doesn’t hurt that the company’s stock is currently starting at a very modest valuation.
Market Performance and Valuation
IBM has consistently S&P 500 (SNPINDEX: ^GSPC) It has risen over the past year, but when viewed from a five-year perspective, it still lags behind the major market indexes.
With a price-to-free cash flow ratio of just 13.0 and a price-to-sales ratio of less than 2.8, IBM offers an attractive valuation compared to other AI stocks, especially when you consider its high dividend yield of 3.6%. Big Blue is the best of both worlds, combining a strong growth opportunity in the AI space with a very conservative valuation.
Innovation and Accessibility with Watsonx
Let’s look at what IBM has been doing recently in terms of AI innovation.
This week, the company released the Mistral Large AI model on its Watsonx.ai platform, a large-scale language model (LLM) that rivals OpenAI’s GPT-4 engine in many ways. alphabet‘s Gemini system, which is particularly good at abstract reasoning based on complex input data, beating OpenAI’s best LLM in this category of benchmarks.
Mistral Large is now part of the IBM Granite AI development platform, which, together with IBM’s highly specialised AI tools and Alphabet’s LLMs, Microsoftand Meta PlatformWhile you won’t find any OpenAI software here (yet), IBM’s broad portfolio of LLM and machine learning systems should be able to cover all of your enterprise’s AI needs, and this becomes even more true with the addition of the highly capable Mistral service.
The introduction of Mistral furthers IBM’s commitment to making advanced AI easily accessible to businesses, helping IBM clients take full advantage of AI tools to drive innovation and growth at their companies.
Consulting expertise and responsible AI
IBM is more than just an AI innovator. It’s a trusted AI advisor. The company’s decades of expertise in consulting services are invaluable as technological advances drive change across the business world, like the ongoing adoption of generative and general AI.
IBM Consulting Services leverages decades of deep AI expertise to serve as a guide for other enterprises navigating the complexities of AI environments. From creating a customized AI strategy aligned with your specific business goals to providing hands-on support during AI implementation and beyond, IBM can help.
This comprehensive approach is a unique win-win situation: it not only generates revenue for IBM, but it fosters lasting partnerships with clients who value IBM’s expertise and commitment to their success. And in the consulting services arena, companies like Alphabet and Microsoft are unlikely to pose a major challenge to IBM; it’s not their business, and their business processes are not set up for sharing IT and business insights in that way.
But IBM’s AI efforts don’t just stop at helping enterprises adopt AI. We’re also committed to ensuring that AI is used responsibly, especially when it comes to training systems for generative AI capabilities. IBM’s AI Ethics Committee plays a key role in this effort, providing careful oversight of the development and deployment of AI technologies.
In a world where concerns about the potential misuse of AI are growing, a focus on transparency, fairness, and ethical practices is crucial: thoughtless implementation could lead to poor quality AI data, the replacement of creative human work by heartless computers, and more.
By prioritizing responsible AI, IBM positions itself as a trusted partner for companies navigating the ethical complexities of this transformative technology.
Addressing potential challenges in a competitive environment
While IBM has significant strengths in the AI market, it’s important to consider potential challenges that could impact future growth.
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Legacy Business: The last vestiges of IBM’s legacy business, while providing financial stability, could hinder its agility in adapting to a rapidly evolving AI environment.
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competition: The AI market is competitive, with many well-funded companies vying for market share, and IBM must continually innovate to stay ahead.
IBM stands out in the AI industry with its unique combination of established expertise, cutting-edge AI solutions such as watsonx.ai, a vibrant consulting business, and a strong commitment to responsible AI. Its seemingly attractive valuation and stable dividend payments further solidify its position as a top AI stock to buy in July.
Should you invest $1,000 in International Business Machines right now?
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Randi Zuckerberg is a former director of market development and spokeswoman for Facebook and the sister of Meta Platforms CEO Mark Zuckerberg. She is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bejlund has invested in Alphabet and International Business Machines. The Motley Fool has invested in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends International Business Machines and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The Top #1 Artificial Intelligence (AI) Stock to Buy in July was originally published by The Motley Fool.
