IBM And Watson: Ushering In A New Age Of Computing

Watson, IBM’s cognitive computing system, exhibited phenomenal capabilities while competing on the television quiz show Jeopardy! in February 2011. The grand debut and triumph at Jeopardy! drew the world’s attention to Watson, which achieved a milestone in artificial intelligence (AI) while denoting a new era in computing – a cognitive era. Six years later, Watson today seems to be everywhere, revolutionizing diverse industries while building IBM’s cognitive future.

Cognitive Computing Explained

The future of technology is radically different from the systems that have dominated the global IT industry for decades. New generation technologies are broadly grouped together using the terms AI and cognitive technologies. At IBM, these advanced techs are referred to as cognitive and defined as “systems that learn at scale, reason with purpose and interact with humans naturally.”

Cognitive systems can learn from “experience and instruction” and are capable of ingesting and understanding extensive data, both structured and unstructured.

IBM’s Watson, named after the technology giant’s founder Thomas J. Watson, is not just capable of reasoning over such data, which is being produced at an unprecedented rate, but it can also identify patterns, form hypotheses and judgment, and even provide potential solutions that aren’t possible through traditional analysis. It uses natural language processing and analytics to quickly analyze, understand and respond to Big Data, thereby transforming decision-making across a variety of industries.

So What Does That Mean For Investors?

Deloitte Global predicts that by 2020, about 95% of the top 100 largest enterprise software companies by revenue will have incorporated one or more cognitive technologies into their products. It further projects the cognitive computing market to expand to $50 billion in the U.S. alone over the next couple of years.

An Accenture report suggests that “AI could double annual economic growth rates in 2035 by changing the nature of work and creating a new relationship between man and machine. The impact of AI technologies on business is projected to increase labor productivity by up to 40% and enable people to make more efficient use of their time.”

Investing In Watson

In January 2014, IBM formed the IBM Watson Group, dedicated to the development and commercialization of cloud-delivered cognitive innovations, committing more than $1 billion to the initiative.

Today, Watson’s expertise is being applied to build solutions that are used and deployed across 20 different industries in more than 45 countries. Ginni Rometty, CEO of IBM, expects more than one billion Watson users through its 700 clients by the end of 2017.

In 2016, IBM became the first company to surpass 8,000 patents in a single year, of which more than 2,700 patents were for inventions related to AI, cognitive computing and cloud computing. Overall, IBM spent around $15 billion across research and development, capital expenditures and acquisitions during the year.

IBM’s strategic imperatives -- cloud, analytics, cognitive, security, social and mobile technologies -- generated $33 billion in revenue in 2016, representing 41% of its overall revenue. While figures for Watson are not published individually, it is estimated that Watson may generate up to $17 billion by 2022 by UBS, which is huge.

Where Watson Is Being Used

Watson Health, Watson IoT, Watson Financial Services, Watson Supply Chain and Watson Commerce are some of the prominent Watson offerings from IBM. Big Blue has been making appropriate investments and acquisitions to stay ahead of the curve.

Watson Health is well positioned to lead the health market (addressable market size ~200 billion), where the data and cognitive opportunity is significant; it is estimated that approximately $2 trillion is wasted out of the healthcare spending and this can be reduced substantially.

Watson IoT is another segment that offers great opportunity (~400 billion plus addressable market by 2019) with estimates that reflect 90% of the IoT data is never acted upon. IBM’s new global HQ for Watson IoT was opened in February 2017. It is a hub for collaborative working between IBMers and its clients to extend the power of cognitive computing in automotive, electronics, manufacturing, healthcare and insurance.

To specialize Watson in risk management for its financial services, IBM acquired Promontory Financial Group, a leader in regulatory compliance and risk management consulting, in 2016.

Final Word

Watson will gain momentum in the coming years as IBM continues to innovate and invest into reinventing itself as a cognitive and cloud platform company to power the emerging needs of modern entities that will make “key architectural decisions - about cloud, about data, about AI.” A new era for computing and IBM has begun.

The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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