In the ever-changing world of artificial intelligence (AI), International Business Machines (NYSE: IBM) is a solid front-runner. Big Blue combines a legacy of innovation with a forward-thinking approach to AI development and implementation — and market makers haven’t caught on to this massive AI investment opportunity yet.
With a focus on responsible AI, a thriving consulting business, and strong partnerships, IBM is poised to capitalize on growing demand for AI solutions while delivering solid returns to investors. It sure doesn’t hurt that the stock is starting from a very modest valuation right now.
Market performance and valuation
IBM has consistently outperformed the S&P 500 (SNPINDEX: ^GSPC) over the past year, but still lags behind the leading market index from a five-year perspective.
With a price-to-free cash flow ratio of just 13.0 and a price-to-sales ratio below 2.8, IBM presents a compelling valuation compared to other AI stocks, especially considering its strong dividend yield of 3.6%. Big Blue gives you the best of both worlds, pairing strong growth opportunities in the AI space with a really modest valuation.
Innovation and accessibility through Watsonx
Let’s check out what IBM has been up lately to in terms of AI innovation.
This week, the company released the Mistral Large AI model on its Watsonx.ai platform. It is a large language model (LLM), in many ways comparable to OpenAI’s GPT-4 engine and Alphabet‘s Gemini system. It is especially good at abstract reasoning based on complex input data, beating OpenAI’s best LLM on benchmarks in this category.
Mistral Large is now a part of the IBM Granite AI development platform, alongside a plethora of IBM’s highly specialized AI tools plus LLMs from Alphabet, Microsoft, and Meta Platforms. You won’t find OpenAI’s software here (yet), but IBM’s broad portfolio of LLMs and machine learning systems should cover whatever AI needs your company might have. That’s only more true after adding the highly capable Mistral service.
The Mistral inclusion further solidifies IBM’s commitment to making advanced AI easily accessible to enterprises. This expansion helps IBM’s client businesses to make the most of AI tools to drive their own innovation and growth.
Consulting expertise and responsible AI
IBM isn’t just an AI innovator; it’s a trusted AI advisor. The company’s decades of expertise in consulting services comes in quite handy when technological progress throws a curveball at the entire business world, like the ongoing adoption of generative and general AI right now.
With their decades of deep AI expertise, IBM’s consulting services act as a guiding hand for other businesses dealing with the complexities of the AI landscape. Whether it’s crafting a tailored AI strategy aligned with specific business goals or providing hands-on support during AI implementation and beyond, IBM is there.
This comprehensive approach is a unique win-win situation. It not only generates revenue for IBM, but also nurtures lasting partnerships with clients who value their expertise and commitment to success. And you won’t see the likes of Alphabet or Microsoft giving IBM much of a challenge in the realm of consulting services. It’s not what they do, and their business processes are not set up to share their IT and business insights that way.
But IBM’s dedication to AI doesn’t stop at helping businesses adopt it. They’re equally passionate about ensuring that AI is used responsibly, especially when it comes to training systems for generative AI functions. Their AI Ethics Board plays a vital role in this endeavor, acting as a vigilant guardian over the development and deployment of AI technologies.
This focus on transparency, fairness, and ethical practices is crucial in a world increasingly concerned about the potential misuse of AI. Thoughtless implementations can lead to lower AI data quality, heartless computerized replacement of creative human jobs, and more.
By prioritizing responsible AI, IBM establishes itself as a trustworthy and reliable partner for businesses navigating the ethical complexities of this transformative technology.
Tackling potential challenges in a competitive landscape
While IBM demonstrates significant strengths in the AI market, it’s important to consider potential challenges that could impact its future growth:
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Legacy business: While providing financial stability, the last vestiges of IBM’s legacy businesses could hinder its agility in adapting to the rapidly evolving AI landscape.
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Competition: The AI market is highly competitive, with numerous well-funded players vying for market share. IBM needs to continuously innovate to maintain its edge.
IBM’s unique combination of established expertise, cutting-edge AI solutions like watsonx.ai, a thriving consulting business, and a strong commitment to responsible AI sets it apart in the AI landscape. A deceptively attractive valuation and consistent dividend payments further cement it as a top AI stock to buy in July.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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 Bylund has positions in Alphabet and International Business Machines. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends International Business Machines and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
1 Top Artificial Intelligence (AI) Stock to Buy in July was originally published by The Motley Fool
