IBM Became an AI Powerhouse in 2025

For a technology company to survive more than a century, it must continually reinvent itself. IBM (NYSE: IBM) has faced multiple crises throughout its long history, and each time, the company has ultimately found its footing through transformation.

In the 1990s, former CEO Lou Gerstner rebuilt IBM's culture and pivoted the company toward services, shifting its focus away from hardware. Over the past decade, cloud computing has posed a significant threat to IBM, prompting the company to undergo another transformation into a leader in hybrid cloud computing.

Today, artificial intelligence is disrupting industries and putting every technology company on notice. IBM was slow to find a viable business model for the age of AI, but the company landed on a winning strategy in 2025, and it's now well-positioned to thrive.

Image source: Getty Images.

Focusing on outcomes for enterprise customers

You won't see IBM plowing unprecedented sums of capital into AI data centers or splurging on frontier AI models. In fact, IBM CEO Arvind Krishna has questioned whether the trillions of dollars being plowed into AI data centers will ever yield a positive return on investment.

Despite this skepticism, IBM is still betting big on AI. The company's strategy, however, differs significantly from that of most of its peers. IBM is focused on delivering AI solutions to its enterprise customers with clear returns on investment. In the same interview where Krishna questioned the industrywide AI data center spending, he predicted that AI will eventually unlock trillions of dollars of productivity in the enterprise.

Helping businesses unlock that productivity is the game that IBM has chosen to play, and so far, that strategy is working. Through a combination of consulting services and software, IBM has won $9.5 billion worth of AI-related business. The company even boosted its full-year outlook in October, partly due to the strength of its AI business.

Companies that attempt to build AI solutions in-house often stumble, according to an MIT study. According to the study, around 95% of AI pilots fail to produce any meaningful returns. However, the success rate is much higher when businesses partner with AI vendors. IBM offers a clear value proposition, and with nearly every major business and organization at least experimenting with AI, the market opportunity is enormous.

It's not too late to buy IBM stock

Shares of IBM surged in 2025, but the tech giant still looks like a solid investment. With the company expecting to generate roughly $14 billion in free cash flow for the full year, the stock trades for just over 20 times free cash flow. That's not a bargain, but given the growth potential of IBM's AI business, it's a reasonable price to pay.

Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.