If Ginni Rometty, the chief executive of IBM, could use Watson to increase the annual profit of IBM from $16.5 billion to $22.8 billion, which is what Microsoft (MSFT) currently makes, what answers would it give?
Obviously, I don't work for IBM and I don't have access to a Watson. I am just using my old-fashioned and apparently obsolete brain to find cheap and profitable acquisition targets for IBM.
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You cannot achieve that with a single acquisition. You can't buy a software and programming company or a computer services company that is already making $6.3 billion each year. Nobody in the entire world makes that kind of money.
In fact, there are only two companies in the entire world making $6.3 billion: Taiwan Semiconductor (TSM) and Bank of Nova Scotia, but the price tags are more than $109 billion and more than $80 billion, respectively.
The price-to-earnings ratios are 17.08 and 13.34, respectively. Both companies are more expensive than IBM right now.
I don't know if these two companies are overvalued or if IBM is extremely cheap at this point in time. But let's leave those two for another time. Right now, we are trying to increase IBM's annual profit by $6.3 billion but without using an $80 billion MasterCard.
Let's see if we can find two or more companies that generate combined annual profit of $6.3 for less than $40 billion.