Most investors looking to capitalize on the artificial intelligence (AI) craze start their search with a familiar name like Nvidia, Microsoft, or Alphabet. And understandably so. These companies are not only advancing AI technology but monetizing it more than most other outfits.
There’s a largely overlooked AI outfit, however, that’s just now coming into its own and could readily outperform the industry’s more popular picks.
That name? International Business Machines (IBM). You know it better as IBM.
Yes, that IBM
That’s not a typo. Most people may not realize it, but IBM is very much in the artificial intelligence business. It’s just in it in a way that doesn’t look like what most people think of when they think of AI.
Chief among these differences is that it doesn’t offer a consumer-facing platform like OpenAI’s ChatGPT or Google’s Gemini. Most of its tools are built for business purposes, like automation or AI-powered customer service agents.
The other big difference is how it offers these solutions. Unlike Nvidia, which largely focuses on processor chips, or Alphabet’s Google, which simply provides cloud-based access to its AI platform, IBM sells and then services entire mainframe computers capable of handling AI work, giving its customers the flexibility that can only come with ownership of such equipment.
It’s the business model that makes IBM a great pick
It’s not just high-performance hardware that makes IBM a compelling AI prospect, though. In fact, infrastructure only accounts for about one-fourth of its total business. It’s what sales of these physical platforms also do that’s so noteworthy. See, they also require IBM-coded software to operate, and they often require ongoing IBM-provided consulting work as well. These two offerings make up another one-fourth and nearly half (respectively) of the company’s total top line.
Although not all of this business is necessarily AI-related, much of it is and increasingly so. To date, IBM’s young generative AI offerings have produced $12.5 billion in cumulative revenue, most of which came from consulting … an arm that now boasts a backlog of $32 billion just waiting to be booked. Meanwhile, its recurring software revenue now stands at an annualized pace of $23.6 billion, with much of that also stemming from IBM’s AI efforts.
For perspective, the company reported a top line of $67.5 billion for the entirety of 2025, up 6% from 2024’s sales.
IBM is just waiting for investors to notice
The key to market-leading bullishness from IBM stock in 2026 is rooted in the realization spurred by results. Most investors may not yet appreciate how much of this company’s future business is already lined up and simply waiting to be reported. As this outfit continues to report high-margin sales growth, though, more and more investors should start to appreciate the company’s razor/razor-blade business model.
Bolstering this bullishness will be continued introductions of new AI technologies like Project Bob, unveiled late last year. More than a mere software coding assistant, “Bob” is an enterprise-level tool that can accept instructions from other AI-powered agents as fluidly as it can from humans, while simultaneously ensuring any new coding adheres to that company’s security and compliance policies.
— James Brumley
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Source: The Motley Fool
