The AI Stock Retirees Are Adding to Their Portfolios -- and Growth Investors Should, Too

Income-oriented investors usually have trouble finding genuine artificial intelligence (AI) exposure that fits their requirements. The names with the most direct AI leverage tend to pay little or no dividend, and the names with the most reliable dividends tend to be underexposed to AI.

International Business Machines (NYSE: IBM) is one of the rare large-cap stocks that satisfies both audiences in 2026 -- a meaningful and growing dividend alongside a business that is now seeing tangible AI-driven revenue acceleration.

The dividend and the business have both changed

IBM raised its dividend for the 31st consecutive year in 2026, continuing one of the longer dividend-growth streaks in U.S. large caps. The more interesting story is what is happening underneath the payout. In the first quarter of 2026, total revenue grew 9.5% year over year to $15.9 billion, software revenue grew 11.3%, and infrastructure revenue grew 15.3% on the back of a strong z17 mainframe cycle.

Two pieces of that are worth understanding. The Red Hat OpenShift business reached a $2 billion annual recurring revenue (ARR) run rate, and IBM disclosed that its AI platform, agents, assistance, and orchestration business exceeded $1.5 billion on a trailing-12-month basis, contributing roughly 2 percentage points to software growth. Software ARR overall reached $24.6 billion, up 10% year over year.

Why watsonx and the IBM mainframe matter together

The product story is the part most retail investors miss. IBM's AI strategy is centered on watsonx, an enterprise AI platform that sits on top of customer data and operates inside hybrid cloud environments, including regulated environments like banks, insurers, and governments. The platform now includes watsonx Code Assistant for Z, which helps customers modernize mainframe code using AI assistance.

The relevance for the retiree investor is that this is not really much of a consumer-facing AI bet. The stock is an enterprise platform sale into IBM's existing largest customers, with long sales cycles and sticky outcomes. Mainframe MIPS capacity (this is a measure of compute capacity) is reportedly growing 3 times faster for customers using watsonx Code Assistant for Z than for those who are not. This is exactly the kind of nuance and cross-sell datapoint that sustains enterprise software companies over decades.

The financial profile

IBM has reiterated full-year 2026 guidance for more than 5% constant-currency revenue growth and expects free cash flow to increase by about $1 billion year over year. The company also guided for software to grow 10% or more for the year. For an income-focused investor, the combination of single-digit total revenue growth, high-single-digit free-cash-flow growth, and a steadily rising dividend is exactly the profile that supports long-term compounding without the volatility of pure-play AI names.

IBM's Confluent acquisition, which closed earlier than expected, deepens IBM's data-in-motion capabilities and gives watsonx a stronger story for real-time enterprise data feeds. That is a building block, not a silver bullet, but it points to where the company is investing.

Now, from a long-term skeptic's view, one could say that watsonx will face direct competition from hyperscaler AI platforms with much bigger distribution and name recognition. My counter to this is that IBM's hybrid cloud and regulated-industry positioning is genuinely different from the public-cloud-first approach of the hyperscalers, and customers in those segments often choose IBM specifically because they do not want their data sitting in a hyperscaler tenant.

IBM is good for retirees and growth investors

For retirees, the appeal here with IBM is its solid dividend payout history, a stable balance sheet, and tangible AI revenue growth that is increasingly meaningful to the overall result. For growth investors, the appeal is that IBM is being rerated as a software and AI company rather than a legacy hardware company, and software-led businesses generally command higher multiples than hardware-led ones.

The cleanest AI story for income-focused portfolios is rarely the one in the headlines. IBM is definitely no longer a computer monitor company. It offers a more than three-decade dividend growth streak, real software and AI revenue acceleration, and an enterprise customer base that produces predictable cash flow. This is a solid investment for retirees.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.