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IBM, Salesforce Collaborate to Strengthen Presence in A.I.

Zacks Equity Research

IBM Corporation IBM and salesforce.com CRM are partnering to solidify their footprint in the rapidly growing artificial intelligence (AI) market. The collaboration will bring together the capabilities of IBM Watson and Einstein AI that will make the decision making process smooth for clients.

The integration of Watson-Einstein will provide an insight on huge amount of data specifically related to the fields of health care, financial services and retail. This will result in improved industry-specific predictions, recommendations and valuable insights that could be used for meaningful customer interactions by the companies.

We note that IBM shares (up 28.8%) have underperformed the Zacks Computer - Integrated Systems industry (up 33.8%) over the last year.

salesforce have also underperformed the Zacks Computer – Software industry over the last one year. While the industry gained 24.6%, the stock appreciated 19.8%.

Following the deal, we anticipate shares of both the companies to rebound as the partnership presents ample growth opportunities in the AI and Customer Relationship Management (CRM) fields.

What Does This Mean for Big Blue?

We note that IBM Watson has been fast gaining traction in recent years. Some other companies that have partnered with IBM for its AI technology include German carmaker BMW (for analyzing driving data), Cisco CSCO (for analyzing industrial Internet of Things (IoT) data), Medtronic (for analyzing data available from medical devices related to diabetes), General Motors (for providing customized content and advertisement to the users) and Twitter (for analyzing tweets and provide insights into user sentiment).

IBM Corporation Revenue (TTM)

International Business Machines Corporation Revenue (TTM) | International Business Machines Corporation Quote

IBM continues to expand its Watson offerings. During the fourth quarter of 2016, the company introduced new offerings like the Watson Data Platform, Watson Discovery Service and trade surveillance for Financial Services. Further, the company added new cognitive capabilities for conversation to Watson.

With this collaboration, IBM has further strengthened its AI platform, which is a positive and will likely accelerate adoption rate going ahead.

What Does This Mean for salesforce?

salesforce is a leading provider of on-demand CRM software. However, with Mark Benioff at the helm, the company has made significant progress in the AI space as well.

Salesforce.com Inc Price

Salesforce.com Inc Price | Salesforce.com Inc Quote

Artificial intelligence has its application in sales as it can improve interaction with customers. Hence, salesforce’s CRM platform will greatly benefit from this collaboration.

Moreover, IBM has agreed to use some of salesforce’s products internally as well, which will strengthen their relationship.

Our Take

As per an IDC report, worldwide spending on cognitive systems and artificial intelligence is estimated to top $47 billion by 2020, up at a CAGR of 55.1%. Competition is strong in the AI space with the presence of major players such as Alphabet’s Google, Amazon, Apple and Intel.

We believe that IBM’s technological prowess combined with strategic collaborations with the likes of Salesforce will go a long way in helping both the companies gain further traction in the markets.

Zacks Rank and Key Pick

At present, both IBM and Salesforce carry a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology space is Fortinet, Inc. FTNT, carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, the Zacks Consensus Estimate for Fortinet’s current year has improved to 43 cents from 42 cents over the last 60 days.

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