Cisco and IBM show old-school tech names can be AI winners too

While many of the biggest and most popular technology stocks have stumbled out of the gates in 2025, some of the sector’s legacy names are drawing renewed attention.

Companies like Cisco Systems Inc., International Business Machines Corp., and Oracle Corp. are outperforming this year, as they signal that they, too, can be winners in the crucial growth area of artificial intelligence.

These stocks are also attracting investors with cheaper valuations and appealing dividend yields compared with the more familiar AI winners, who are left with higher bars to clear after prolonged outperformance. A murky outlook for interest rates and import tariff tensions only underscore their appeal.

“In a time of economic uncertainty, these more mature companies offer attributes that are defensive and very desirable,” said Stephen Bersey, head of technology research at HSBC. “At the same time, there is more AI-related demand, which is helping to boost their growth, which had otherwise been more diminished.”

Take Cisco. The seller of networking gear had become something of an afterthought in the current tech landscape, with shares still well below their dot-com era peak. However, its results last week beat expectations, and it gave an outlook that showed strong demand related to the building of AI infrastructure. The news sparked a rally that took shares to their highest since 2000.

Compared with the Magnificent Seven group of tech megacaps, the sector’s legacy names have lagged behind in the S&P 500’s AI-powered advance to multiple record highs. Recent trends have been more positive.

Cisco is up 10% this year, including Tuesday’s gain of 1%, while IBM has rallied 19% and Oracle has risen 5.9%. The Bloomberg Magnificent 7 Total Return Index is up 2%, while Apple Inc., Microsoft Corp., Alphabet Inc., and Tesla Inc. are all negative on the year. Nvidia Corp., the chipmaker at the heart of the AI boom, is up 6.2%.

Rediscovering an old favorite like Cisco has emerged as something of an investment theme on Wall Street. IBM, another stock that went years between records, has charged higher in recent months. Its own forecast last month projected strong revenue growth and a jump in AI-related bookings, and it followed that up with a bullish long-term sales outlook.

“It was very unloved — then started hitting numbers, buying software and showed it is likely to grow 5%+,” wrote Melius Research analyst Ben Reitzes.

Oracle has a similar new lease on life, with investors viewing it as a major player in cloud computing, alongside much-bigger peers like Microsoft, Amazon.com Inc., and Alphabet.

Results from the Magnificent Seven largely failed to reassure investors that their heavy spending on AI will deliver a major earnings boost any time soon. While Wall Street remains widely bullish on the group and its long-term potential with AI, current levels of spending and growth have made it harder to justify valuations, which in many cases are above their long-term averages.

The legacy tech stocks, in contrast, look like bargains. Cisco trades at less than 17 times estimated earnings, compared with the Mag 7 index’s multiple above 30. Furthermore, Cisco and IBM offer indicated dividend yields above 2.5%, unusually high for tech companies.

Cisco’s lower multiple reflects how, even with last week’s report, growth trends remain fairly underwhelming. Revenue is seen rising 4.8% in its 2025 fiscal year before slightly accelerating to 5% in fiscal 2026, a rate that represents a near-term peak, according to data compiled by Bloomberg. That growth is half of what’s expected for the overall tech sector in both years, according to Bloomberg Intelligence.

Still, the lower multiple could offer a buffer against macro uncertainties, including inflation, geopolitical tensions, and the prospect of a trade war, especially if there are additional signs their AI stories are only getting started.

“I think these cheaper, more diversified tech companies, after having been overshadowed by the Mag 7, will continue to take the lead,” said Ted Parrish, chief investment officer of Parrish Capital. “They have stability in earnings but are a way to play AI that’s safer while the others are priced for perfection. They may be boring in some respects, but we think they’re going to pay off.”

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With assistance from Subrat Patnaik

Ryan Vlastelica, Bloomberg News

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