Leading analyst says IBM stock could fall 18% and Watson won't save the day

Key Points
  • IBM missed a lot of opportunities over the years, Jefferies analyst James Kisner says.
  • Kisner has an underperform rating on the stock and a price target of $125.
IBM earnings quality 'not very impressive': Jefferies James Kisner
IBM earnings quality 'not very impressive': Jefferies James Kisner

IBM's stock is poised to fall 18 percent and the company's AI supercomputer, Watson, won't move the needle, Jefferies' James Kisner told CNBC on Wednesday.

The iconic technology company's stock fell Tuesday after it reported revenue was down year over year for the 21st-straight quarter, off by more than 4 percent. The stock was down about 3.5 percent premarket Wednesday, trading below $149 a share.

"The company missed some opportunities. If they had acquired Salesforce years ago, that might have been something they could do," Kisner said on "Squawk Box."

Kisner has an underperform rating on the stock and a 2018 price target of $125. That would be an 18 percent decline from Tuesday's closing price of $154 a share.

In response, an IBM spokesperson said: " Watson is the world's leading AI platform for business. No other company has the scope of enterprise AI engagements as IBM, from 50 hospital systems around the world deploying Watson for Oncology, to companies such as H&R Block, GM and Credit Mutuel leveraging Watson to transform their customer experience."

IBM has struggled over the past five years to grow revenues as it transitions from traditional business tools, like mainframes, to new fields like artificial intelligence, cybersecurity and cloud.

On Tuesday, Martin Schroeter, IBM's senior vice president and chief financial officer, told CNBC the company is always looking for "profit pools" in enterprise technology.

Billionaire investor Warren Buffett and others who like the stock have , Watson, as a valuable experiment.

But Kisner said the supercomputer won't "move the needle."

"The whole cognitive software market for artificial intelligence was $1.5 billion last year. As we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment: IBM is an expensive solution," he argued.

--CNBC's Anita Balakrishnan contributed to this report.