IBM: The Overlooked AI Stock Poised to Outperform Nvidia & Microsoft?

Investors are reassessing the artificial intelligence landscape, shifting focus from high-profile names to companies quietly building comprehensive AI systems. Recent earnings reports suggest that a holistic approach – combining hardware, software, and service – may prove more valuable than standalone AI platforms.

International Business Machines (IBM), a name not typically at the forefront of AI discussions, is emerging as a potential surprise winner in the burgeoning field. Even as companies like Nvidia, Microsoft, and Alphabet dominate headlines, IBM is carving out a distinct niche by offering complete AI solutions tailored for business applications.

Unlike OpenAI’s ChatGPT or Google’s Gemini, IBM doesn’t focus on consumer-facing AI. Instead, its tools are designed for enterprise-level tasks such as automation and AI-powered customer service. A key differentiator is IBM’s business model: it doesn’t simply sell processor chips like Nvidia, nor does it offer cloud-based AI access like Google. IBM sells and services entire mainframe computers capable of handling AI workloads, providing customers with ownership and flexibility.

This integrated approach extends beyond hardware. Approximately one-fourth of IBM’s business comes from infrastructure, while another one-fourth is generated by software specifically coded for these platforms. The remaining nearly half of its revenue stems from ongoing consulting services, a crucial component of its AI offerings. While not all of IBM’s revenue is directly AI-related, the proportion is steadily increasing.

To date, IBM’s generative AI offerings have generated $12.5 billion in cumulative revenue, largely driven by its consulting arm, which currently boasts a backlog of $32 billion in unbooked projects. Recurring software revenue is also on the rise, reaching an annualized pace of $23.6 billion, with a significant portion attributable to its AI initiatives. For the entirety of 2025, IBM reported total revenue of $67.5 billion, a 6% increase over 2024.

A recent unveiling, Project Bob, further solidifies IBM’s position. Described as an enterprise-level coding assistant, Bob can accept instructions from both human developers and other AI agents, while simultaneously ensuring adherence to a company’s security and compliance policies. This capability positions IBM as a provider of secure and scalable AI solutions for businesses.

Despite these positive indicators, IBM has not been included in recent top stock picks by analysts at The Motley Fool Stock Advisor, who identified ten other stocks as potentially offering greater returns. Although, the firm’s historical performance – with an average return of 918% compared to the S&P 500’s 196% – suggests its recommendations carry weight. Past successes include identifying Netflix in 2004 and Nvidia in 2005.