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International Business Machines (IBM) Announces $1 Billion Watson Investment

Stocks in this article: IBM

NEW YORK (TheStreet) -- International Business Machines Corporation  (IBM) was falling 0.27% to $186.87 on Friday morning but could recover some of those losses thanks to the company's new investment plan.

IBM plans to invest more than $1 billion to create a new business unit for its Watson supercomputer, which it hopes will create $10 billion within the next 10 years. The investment plan includes $100 million for a venture capital fund that should stimulate the Watson Developers Cloud, which the company opened to external programmers in 2013. Furthermore, IBM plans to increase the number of workers at the Watson group to approximately 2,000, and many of those brought on board would be salespeople and consultants who would aid customers in using Watson.

This news comes on the heels of reports that Watson brought in less than $100 million from Watson as of Oct. 2013, as multiple projects either went wrong or proved to be more problematic than previously anticipated.

TheStreet Ratings team rates IBM as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTL BUSINESS MACHINES CORP (IBM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity, expanding profit margins and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • INTL BUSINESS MACHINES CORP has improved earnings per share by 10.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $14.41 versus $13.12 in the prior year. This year, the market expects an improvement in earnings ($16.90 versus $14.41).
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the IT Services industry and the overall market, INTL BUSINESS MACHINES CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 53.54%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 17.03% trails the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 5.7% when compared to the same quarter one year prior, going from $3,823.00 million to $4,041.00 million.
  • Despite the weak revenue results, IBM has outperformed against the industry average of 22.7%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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