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IBM Cloud, Watson & AI Services Adoption Grows in Europe

Zacks Equity Research

International Business Machines Corporation IBM recently announced a slew of collaborations, service renewals and agreements with its expanding Europe-based clientele.

IBM Cloud was recently selected by Poland-based, The Agricultural Social Insurance Fund, to enhance e-learning platform and expand business. Meanwhile, Italy-based Confindustria, tapped into IBM’s Cloud platformto migrate its IT infrastructure from traditional on-premises architecture.

Further, Endesa, based out of Spain, is utilizing IBM Cloud and IBM Watson to automate its call center processes with AI-based virtual assistants to offer personalized customer service and expand clientele.

The robust adoption of IBM’s hybrid cloud platforms, Watson services and other AI-driven offerings is expected to benefit the top line in the days ahead.

Into the Headlines

The company recently entered into agreements with major European automotive companies leveraging IBM’s digital transformation services, which includes Germany-based Volkswagen Sachsen GmbH.

Additionally, Netherlands-based Vinturas will utilize IBM’s Blockchain technologies to accelerate logistics processes and streamline purchase of new or used cars.

The clientele also comprises Belgium-based Performance for Assets (P4A), Munich, Germany-based Moovster, among others.

International Business Machines Corporation Revenue (Quarterly)

International Business Machines Corporation Revenue (Quarterly)

International Business Machines Corporation revenue-quarterly | International Business Machines Corporation Quote

What’s Favoring IBM’s Expansion in Europe?

IBM’s robust familiarity with managing and implementing cloud platforms has been a tailwind.Moreover, growing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence calls for robust IT infrastructure management services.

Notably, IBM has 18 availability zones globally, with two major regions in Germany and the U.K. The company has also obtained Germany's C5 attestation. Given the increasing data related regulations, including the likes of European Union’s GDPR, businesses are pursuing means to control their data better.

Additionally, IBM Cloud offers local EU-based support to its clientele by which access can be confined to solely EU-based IBM employees. These factors are aiding the tech giant expand presence in Europe.

Market Prospects Abound

IBM Cloud’s increasing adoption on the back of strength in company’s hosted private cloud offerings bodes well. In first-quarter fiscal 2019, IBM’s Cloud & Cognitive Software segment’s revenues-external improved 2% year over year (on cc basis) to $5 billion. Segmental revenues pertaining to Cloud increased 10%.

Moreover, the expanding customer base strengthens the company’s growth prospects in the digital transformation market, which per a MarketsandMarkets report, is envisioned to witness a CAGR of 18.1% to $665 billion by 2023 from $290 billion in 2018.

Per Gartner, enterprise IT spending is projected to hit $3.295 billion in 2020 from $3.747 billion in 2018. Ongoing digital transformation initiatives and hyperscale datacenter development are the primary catalysts behind cloud-based IT infrastructure expansion.

The aforementioned secular trends reinforce IBM’s growth prospects in the longer haul. However, rising competition from Amazon’s AMZN Amazon Web Services (“AWS”) and Microsoft Azure in the cloud infrastructure services market is a headwind.

Zacks Rank & Key Picks

IBM carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader sector, include Cadence Design Systems CDNS and Verint Systems Inc. VRNT, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence and Verint is pegged at 12% and 11%, respectively.

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