In 2025, while many leading tech stocks have struggled, legacy companies like Cisco Systems, International Business Machines (IBM), and Oracle are gaining attention for their performance and potential in the artificial intelligence (AI) market. These firms are appealing to investors due to their lower valuations and attractive dividend yields compared to the more popular AI stocks, which have faced higher performance expectations after a period of significant gains.
HSBC’s Stephen Bersey highlights that these mature companies offer desirable defensive attributes during economic uncertainty, alongside increased demand for AI-related solutions. For instance, Cisco’s recent stronger-than-expected results and positive outlook have led to a rise in its stock price, reaching levels not seen since 2000. Similarly, IBM has shown renewed momentum with promising revenue growth forecasts and rising AI bookings.
In contrast to the struggling Magnificent Seven tech giants, Cisco has risen 10% this year, IBM 19%, and Oracle 5.9%. The Magnificent Seven index has only increased by 2%, with several individual stocks, including Apple and Microsoft, experiencing declines. The legacy tech stocks are seen as bargains, trading at lower price-to-earnings ratios and offering higher dividend yields—over 2.5% for Cisco and IBM—compared to the relatively inflated valuations of their larger counterparts. Despite Cisco’s growth being modest at around 4.8% for the 2025 fiscal year, its lower valuation may provide a cushion against macroeconomic uncertainties. Analysts believe that these diversified, undervalued tech companies may outperform their more hyped peers as they continue to tap into the AI market. Ted Parrish from Parrish Capital suggests that while these stocks may seem less exciting, they present a safer investment opportunity with the potential for solid returns.
