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International Business Machines Corp. (NYSE: IBM ) has been a frequent member of the Dow Jones Composite Average and one of the most followed stocks on Wall Street. IBM stock sports a market capitalization of $150 billion and has to explore new areas to continue its growth. Luckily for IBM, the company has an ace up its sleeve in the form of Watson.
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The Jeopardy-winning super computer is pushing International Business Machines into new areas, including its latest launch in autonomous cars. Boosted by Watson, IBM stock looks like a buy.
Watson is most famous for defeating two Jeopardy champions in a televised three-day event back in 2011. During the competition, Watson beat Ken Jennings and Brad Rutter with a win of $77,147 to $24,000 (Jennings) and $21,600 (Rutter). International Business Machines won $1 million from Watson's performance, which went to charity. The bigger win for the company was showing off just how powerful its supercomputer was at learning anything fed at it.
Watson and Autonomous Cars
IBM stock could get a boost if the company's latest push into autonomous cars pays off. The company is starting small by going after the bus market, but its technology could soon find its way into autonomous cars through partnerships with major automobile manufacturers.
The Olli driverless transit vehicle was shown off at the Los Angeles Auto Show with full demonstrations. Designed by Local Motors, this is the first product to use Watson in its automotive technology. This autonomous car can transport 12 passengers along pre-determined or on-demand routes at speeds of up to 25 miles per hour. Local Motors calls the vehicle perfect for current bus routes, airports, theme parks or college campuses.
IBM stock won't see a huge boost from this early Watson-powered device. The possibilities here are what investors should be excited about when International Business Machines finally lands inside other autonomous cars.
Perhaps the coolest feature from IBM's Watson is the ability for passengers to talk to their autonomous car Olli and ask questions about the route, the technology used or recommendations for places to go. Watson acts similar to Apple Inc. 's (NASDAQ: AAPL ) Siri or Amazon.com, Inc. 's (NASDAQ: AMZN ) Alexa.
The difference here is that International Business Machines' Watson doesn't just provide facts, it is able to familiarize itself with the person inside the vehicle and learn patterns that could lead to better feedback and recommendations.
Earlier this year, Watson software was also used by General Motors Company (NYSE: GM ) for its new OnStar Go platform. The service, which will be available to more than 12 million automobiles, is a " cognitive mobility platform ".
Like Olli, passengers will be able to ask for recommendations and see tailored settings to their habits. This OnStar platform will also use IBM to help launch advertisers and partners, like Mastercard Inc (NYSE: MA ), iHeartRadio and Exxon Mobil Corporation (NYSE: XOM ). This partnership could be the first of several between GM and International Business Machines.
IBM has been pushing its internet of things business and is listing automotive as one of the areas on its site. Olli is being rolled out in Washington D.C. and has deals in place with Miami and Las Vegas. This puts autonomous cars on the road using International Business Machines' Watson as the brains.
The internet of things market remains a huge opportunity for IBM stock. The company sees the IOT market hitting $11 trillion by 2025 and 250 million connected vehicles on the road by 2020. That's why International Business Machines is pushing Watson and its other businesses into connected areas like homes, buildings, retailers and vehicles.
IBM pushed Watson into the healthcare field shortly after its Jeopardy win. Watson has gone on to be a force in the healthcare field in areas like medical imaging, cancer treatment, diabetes treatment and diagnostics. A 2013 article hit on the fact that using Watson was helping doctors better diagnose patients' conditions . In lung cancer diagnosis, International Business Machines' Watson had a success rate of 90% versus doctors' 50% rate.
Bottom Line on IBM Stock
The push of IOT and Watson is starting to benefit the company's financials and should soon boost IBM stock. International Business Machines reported a strong third quarter, powered by growth in its cloud businesses.
Cloud revenue hit $12.7 billion over the last reported twelve months; Cloud-as-a-Service has an annual run rate of $7.5 billion. And the company's Technology Services & Cloud Platforms segment led the way in the quarter with $8.7 billion in revenue.
IBM continues to be one of the most promising technology companies for the future. The company is pushing further into the internet of things, a major growth area for years to come. And Watson is a great tool that is being used by the company to expand into new areas. Its entry into autonomous cars may seem small, but with the name recognition of Watson and the demonstration at the Los Angeles Auto Show, I would expect more deals to come soon.
IBM stock trades close to a 52-week high and has seen a nice increase of 16% in 2016. The stock has declined 9% over a five-year period and remains far off from the $200-level it saw just a few years ago. Look for Watson and new growth areas to rev up International Business Machines stock over the short- and long-term.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
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