IBM's Watson figures everywhere but the figures

Published Fri, Feb 26 20163:59 PM EST

Breakingviews

Robert Cyran

Big Blue's investor day focused squarely on a big bet on artificial intelligence. Software that interprets floods of data is becoming the next big thing. The hard part will be making it profitable. Years of effort have yet to produce a real financial result or forecast from IBM. Global spending on information technology will be $1.2 trillion this year, IBM reckons, and grow at the same rate as the global economy. Older obsolescent products will shrink while cutting-edge technologies rise. IBM's problem is that most of its revenue — at $82 billion last year — comes from ones in decline. Getting in front of the bigger market ahead will be a challenge. IBM is developing predictive programs for clients, in a market it expects to be worth $2 trillion annually. IBM isn't alone in its exuberance. At a Breakingviews event in San Francisco this week, venture capitalist Jim Breyer — who was an early backer of Facebook — compared the opportunities in artificial intelligence today to those associated with the Internet in 1995 and social networking a decade ago. He declined to comment on Watson's prospects. Consider, for example, that some $1 trillion is wasted in U.S. health care every year, according to PwC. Software that could uncover fraud and help doctors treat better would be enormous. The industry is at the center of IBM's Watson push. More from Breakingviews : Baidu still searching for local-services profits Grabbing just a piece of the AI market probably would do wonders for IBM's top and bottom lines. Yet it has disclosed few figures about Watson's performance, even as its shares have fallen by almost a fifth over the past five years and badly lagged the S & P 500 Index. IBM breaks out what it calls Cognitive Solutions. It's a profitable $18 billion division but includes other unrelated businesses. Outsiders trying to gauge Watson's success are left with vaguer claims of fast expansion based on languages and customers. Meanwhile, IBM keeps splashing out billions to buy companies like Truven without any indication of what sort of return on investment there might be. Read More Top analyst: Favorite software stocks for 2016 It has been five years since Watson rose to fame by winning the TV trivia game show "Jeopardy." The business clearly has marquee value, evidenced most recently at the investor day. For all of Watson's analytical and predictive power, though, there's no evidence it's helping its owner provide a clear view of the future to investors. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com .

Traders gather at the post that trades IBM on the floor of the New York Stock Exchange, Oct. 20, 2014.

Brendan McDermid | Reuters

Global spending on information technology will be $1.2 trillion this year, IBM reckons, and grow at the same rate as the global economy. Older obsolescent products will shrink while cutting-edge technologies rise. IBM's problem is that most of its revenue — at $82 billion last year — comes from ones in decline.