IBM earnings: Investors want to see how Watson holds on to AI, machine learning market

International Business Machines Corp.’s artificial intelligence product Watson appears to be losing ground to competitors, and investors will likely want to know how that’s affecting the tech giant’s cognitive-solutions business.

IBM IBM, +1.32%  is scheduled to report third-quarter earnings after the bell on Tuesday. While cognitive solutions, which includes Watson, is expected to be IBM’s poorest performing segment in this earnings report, it occurs in a seasonally weak quarter for IBM.

Analysts surveyed by FactSet expect cognitive-solutions revenue to decline 2% to $4.31 billion from the year-ago quarter, and that appears to be happening while IBM is losing business to competitors like Amazon.com Inc. AMZN, +4.03%  and Microsoft Corp. MSFT, +3.46%

In a Morgan Stanley survey of chief information officers — 76 from U.S. IT companies and 24 from European companies, carried out in August and September — the firm found that 43% of CIOs are evaluating using AI and machine learning in their businesses, compared with 35% in the year ago period. But with that increase, IBM has lost its dominance, according to Morgan Stanley.

Of the CIOs surveyed, 27% preferred Amazon as a vendor, up from 24% in the year-ago survey. Preference for IBM fell to 24% of respondents from 33% in the year-ago survey. Microsoft remained in third place at 20%, up from 15% in the year-ago survey.

Also, 30% of respondents said they had an enterprise license agreement with IBM in the third quarter, down from 35% in the first quarter. But of those who had an ELA, 28% said they would renew at a higher price. The survey found that 53% expect to renew an ELA with IBM over the next 18 months, compared with 58% in the first quarter.

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