An incredible finding from MIT’s NANDA initiative paints a stark picture of generative AI use in the enterprise. While some companies are succeeding in meaningfully growing revenue or reducing costs by leveraging generative AI, around 95% of artificial intelligence (AI) pilot programs fail to make a meaningful impact. This conclusion comes from interviews with leaders, surveys of employees, and analysis of public AI deployments.

The biggest problem, according to MIT’s research, was poor integration. Companies that succeeded in deploying generative AI stuck to narrow, well-defined problems. In contrast, companies that failed to properly integrate powerful AI models into their workflows ran into serious issues.

Another wrinkle was that many AI deployments were focused on sales and marketing applications, whereas the highest returns on investments generally came from back-office automation.

IBM’s AI strategy is validated

This apparent widespread failure to deploy generative AI productively provides validation for IBM‘s (IBM 0.43%) AI strategy. IBM has generated more than $7.5 billion in bookings related to generative AI, but around 80% of that business comes from the company’s consulting arm. By pairing consulting services with software, IBM can deliver complete AI solutions, including integration services, that deliver results for its clients.

The MIT study found that many enterprises in highly regulated sectors were attempting to build their own proprietary generative AI systems, but failure rates were higher compared to purchased solutions. Generative AI is a powerful technology, but it’s far from foolproof and won’t produce results if not implemented with care.

During IBM’s second-quarter earnings call, CEO Arvind Krishna said the company was seeing strong demand for AI agent solutions and its cost-effective Granite AI models. Krishna also noted that demand was accelerating for its consulting services related to deploying AI.

Part of IBM’s secret sauce is its network of partnerships with other technology companies. IBM can construct AI solutions for clients that involve third-party cloud platforms like Amazon Web Services and third-party software, opening the door to a lot more business than the company would win if it stuck with its own products and services. As of late 2023, some of IBM’s partnerships were already bringing in billions of dollars of business annually.

IBM’s AI business is helping to offset weak demand for some discretionary projects. The company is seeing delayed decision-making for projects that aren’t mission-critical and don’t have clear returns on investment. In contrast, many of the AI projects IBM is working on with clients are aimed at reducing costs or boosting efficiency, which is appealing during periods of economic uncertainty.

Time to buy this enterprise AI leader

With enterprises struggling to successfully implement generative AI technology on their own, IBM is in a great position to grow its generative AI business. The company’s consulting-focused strategy is winning more than $1 billion in new generative AI business each quarter, a number that could grow as more clients abandon home-grown AI efforts that aren’t paying off.

AI is one reason why IBM’s revenue growth is accelerating. The company expects to generate constant-currency revenue growth of at least 5% this year despite an uncertain economic backdrop, and free cash flow is expected to grow to more than $13.5 billion. With a current market capitalization around $225 billion, IBM stock trades for less than 17 times free cash flow guidance.

At that valuation, IBM stock seems like a great long-term buy. As enterprises grapple with complex AI integration, IBM is emerging as the partner of choice.

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

Not all dividend stocks are boring. In fact, over the past 12 months, some of the top-performing shares on Wall Street have been dividend stocks. Let’s take a look at two such companies and see why they have performed so well, and why now might be the right time for investors to buy.

IBM

First, there’s International Business Machines (IBM 0.72%). With a staggering total return of more than 66% over the last 12 months, IBM stock has been on fire. It pays a quarterly dividend of $1.68, generating a dividend yield of about 2.4%. The recipe for its recent success comes down to its broad-based appeal; income-seeking investors appreciate the company’s consistent dividend payments, and growth-oriented investors like its steady growth prospects.

Let’s look at the dividends first. IBM’s history of dividend payments stretches back more than a century, to 1916. Moreover, it has increased its quarterly dividend payment for 30 years in a row. Needless to say, that makes income-seeking investors very happy. After all, it’s one thing for a company to make a dividend payment. It’s quite another for regular and increasing dividend payments to be ingrained into the corporate culture.

Turning to IBM’s fundamentals, the company has the free cash flow to easily support its dividend regime. Over the past 12 months, IBM reported $12 billion in free cash flow. Dividend payments amounted to about $6.2 billion.

If there’s an area where value investors should keep a close eye on, it’s IBM’s balance sheet. The company does carry a significant amount of debt, totaling nearly $67 billion, with cash on hand of about $17 billion. Moreover, the company’s net debt has been creeping upwards in recent years.

However, this leads us to IBM’s growth prospects. The company wants to be a player in the new artificial intelligence (AI) market. That could lead to revenue growth, which has been hard to come by for IBM. For example, over the last 10 years, IBM’s revenue has actually decreased, from $87 billion in 2015 to $63 billion today. Yet, observers expect that trend to reverse. According to analyst estimates compiled by Yahoo! Finance, IBM’s revenue should rise to $66 billion this year and $69 billion by 2026.

IBM remains a solid choice for investors seeking a stock that combines decent dividend income with modest growth prospects.

AT&T

Then, there’s AT&T (T -0.04%). As of this writing, AT&T’s stock boasts a total return of 61% over the last 12 months, handily outpacing the S&P 500‘s total return of 11% over the same period. AT&T’s outperformance comes thanks to the company’s renewed focus on its core wireless and fiber businesses, and its improving fundamentals.

AT&T has shed ancillary businesses like DirecTV and Time Warner in recent years, concentrating once again on wireless and fiber connectivity. What’s more, by rededicating itself to these businesses and their supporting infrastructure, AT&T is better aligning its business with customer demands for faster, reliable service. This is in contrast to prior years, when the company seemed just as interested in cross-selling satellite or streaming services as it was in delivering reliable wireless coverage.

Regarding fundamentals, AT&T’s balance sheet is improving. One of the biggest drags on AT&T over the last decade has been its staggering debt load. As of 2018, the company’s net debt was around $180 billion. However, under its current management, the company has drastically reduced its net debt, which now stands at $121 billion. While still immense, that represents a decrease of roughly 32%.

Turning to cash flow, AT&T generates about $19 billion in free cash flow every 12 months and pays out slightly over $8 billion in dividend payments. While investors would love to see even more free cash flow to fund capital investments, debt reduction, and increased dividend payments, the current rate is enough to sustain AT&T’s current payouts.

AT&T has gotten back to basics, which is helping its stock soar. The stock pays a quarterly dividend of $0.28/share, or a dividend yield of about 4%. Investors who have previously overlooked the stock might want to consider it now, as the company continues its rebound.

Jake Lerch has positions in AT&T and International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.