IBM Can’t Acquire Its Way Into Tech’s Top Ranks

On the face of it, there isn’t much wrong with International Business Machine Corp.’s $4.6 billion deal to buy software provider Apptio. The acquisition is the seventh made by Big Blue this year, part of Chief Executive Officer Arvind Krishna’s continued effort to pivot the 112-year-old company away from its legacy business of IT infrastructure.

Yet the deal did little to inspire investors. IBM’s share price rose by just 1.48% on Monday following the deal’s announcement. The shares are down around 7% since the beginning of the year, well behind the S&P 500 and certainly not enjoying the artificial intelligence bounce seen by other tech giants.

It has been a steep comedown for a company that was once expected to lead the AI revolution. A quarter century ago, IBM dazzled the world with Deep Blue, a computer that could beat a chess grand master. More than a decade ago, its supercomputer Watson bested a Jeopardy champion. There were high hopes that the technology powering these machines would propel IBM to the forefront of business adoption of AI. Yet the company failed to capitalize on its early success. When a mesmerizing AI technology was finally released into the wild last year, it wasn’t IBM but by a relatively tiny venture, OpenAI, the startup behind ChatGPT.

Flagging Sales at Big Blue | More than 30 acquisitions since 2020 haven't moved the needle for IBM's overall revenue

That’s not to say AI isn’t part of IBM’s business. It offers clients call center management and HR tools that are greatly enhanced by AI and therefore require fewer human workers. Indeed, earlier this year, IBM disclosed that it would enjoy the labor-saving benefits itself, saying it was pausing or slowing the hiring of its own back-office roles due to improving automation capabilities. Krishna said at the time that he could envision thousands of IBM jobs being replaced by AI and automation.

Some observers questioned whether that framing was a cover for an old-fashioned hiring freeze, but few would disagree with the general trajectory of that kind of job. “I think AI will probably improve productivity internally at IBM,” suggested Moshe Katri, an analyst at Wedbush. “But are they a leader in AI? They’re not.”