IBM's Watson Is Significant, Says Morgan Stanley, Investors Just Have to Get It

Shares of International Business Machines (IBM) are up 3.50, or 2.4%, at 151.91, after Morgan Stanley's Katy Huberty this morning reiterated an Overweight rating on the shares, and jacked her price target to 168 from 140, while she now thinks the most bullish scenario for the company could see the stock soar to 195. A lot of that depends on sentiment turning among skeptical investors, she notes: That upside scenario to 195 is predicated on the prospect that "investors begin to recognize IBM's competitive lead in Strategic Imperatives, particularly Watson." The main contention Huberty makes is that Watson, the company's artificial intelligence service, is going to double the number of customers it has this year, and that "after aggressive hiring and an estimated 5B in data acquisitions over just the past two quarters, IBM is beginning to show a path toward revenue monetization in Watson." Huberty doesn't project any financials for Watson, but she has been keeping a list of the customers that have signed up for the service, names such as Japan's SoftBank (9984JP) and Johnson & Johnson (JNJ), which give her confidence the company can make real money off of many sectors of the economy such as healthcare: From a top-down perspective, we see Watson as similar (though even more disruptive) to ERP which initially helped address human inefficiencies in business much like Watson. ERP has grown into a 150B market including software, hardware, and services and we see that as a conservative estimate for cognitive computing with IBM Watson the likely share leader.