Big trouble ahead for IBM? Catch this headline:

“Creating Shareholder Value with AI? Not so Elementary, My Dear Watson”

If supercomputer Watson is the key to IBM’s future as the cornerstone of its artificial intelligence play, Wall Street analyst firm Jefferies says Big Blue is headed for trouble.

“Outgunned” for talent, IBM faces increasing competition as well as the fact Watson requires “significant consulting” services.

Bottom line: Jefferies reiterated its “underperform” rating for Big Blue stock and lowered its price target to $125 from $135.

Inside the report

Three analysts at Jefferies wrote the report, leading off with the following as the “key takeaway:”

“Our checks suggest that while IBM offers one of the more mature cognitive computing platforms today, the hefty services component of many AI deployments will be a hindrance to adoption. We also believe IBM appears outgunned in the war for AI talent and will likely see increasing competition. Finally, our analysis suggests that the returns on IBM’s investments aren’t likely to be above the cost of capital.”

The analysts say their research concludes that “AI is the new electricity.” And IBM is hardly the only player in the field even though Watson is top-of-mind to many of us tech fans thanks to clever and extensive marketing.

“Our checks confirm that a wide range of organizations are exploring incorporating AI in their business, mostly using Machine and Deep Learning for speech and image recognition applications,” the Jefferies team writes.

However, the stress that the “competitive environment doesn’t favor IBM.”

“Our checks suggest that IBM’s Watson platform remains one of the most complete cognitive platforms available in the marketplace today. However, many new engagements require significant consulting work to gather and curate data, making some organizations balk at engaging with IBM.” they wrote.

“[M]any major companies are making significant investments in AI, and private capital formation is booming, growing over 50% to $4.25B in 2016 per CB insights, with nearly 1900 startups in the space tracked by Venture Scanner. Our analysis of job listings also suggests that IBM appears outgunned in the ‘war’ for AI talent; Amazon, for example, has more than 10x the job listings of IBM. Finally, enterprises now have many choices for APIs from various providers; notably IBM dropped its pricing for Watson Conversations by 70% in October ’16.”

Read the full report at:

IBM operates one of its largest corporate campuses in RTP and employs several thousand people across North Carolina.