While the biggest and most prominent tech stocks have stumbled in early 2025, a surprising shift is happening as some of the industry’s legacy companies regain investor interest. Firms like Cisco Systems, International Business Machines (IBM), and Oracle have outperformed their peers, signaling their potential to be key players in the rapidly growing field of artificial intelligence (AI).
These companies are benefiting from their more attractive valuations and appealing dividend yields, positioning themselves as safer bets in the face of market uncertainties. With the AI sector gaining momentum, these mature firms are showing that they, too, can be part of the next big wave of technological growth, despite being overshadowed by the tech giants of the “Magnificent Seven” (Apple, Microsoft, Alphabet, Tesla, and others).
Cisco, for example, had been somewhat overlooked in recent years, but its results last week exceeded expectations, thanks to strong demand driven by the building of AI infrastructure. This prompted a rally in its stock, bringing it to its highest level since the dot-com era. Similarly, IBM’s rally has been fueled by its own positive projections, including a strong outlook for AI-related bookings. With forecasts predicting solid revenue growth, the company’s stock has made a strong comeback after years of stagnation.
Oracle, which has been gaining traction as a significant player in cloud computing, has also experienced renewed interest. Investors see it as a competitor to the likes of Microsoft and Amazon, and its performance in the market reflects this shift in perception.
These legacy tech companies are benefiting from the growing demand for AI, which has become a central focus for investors. However, unlike the tech megacaps that have seen their valuations soar, Cisco, IBM, and Oracle still offer more reasonable price-to-earnings ratios, which makes them appear more attractive to investors seeking stability amid uncertainty. For example, Cisco trades at less than 17 times estimated earnings, while the Magnificent Seven tech companies often trade at multiples above 30. Furthermore, these legacy firms offer dividend yields that are unusually high for the tech sector, providing additional appeal for income-seeking investors.
While the growth prospects of these legacy companies are more modest compared to their flashier counterparts, their stability makes them a safer bet in a market that is increasingly wary of rising inflation, geopolitical tensions, and other macroeconomic uncertainties. Investors like Ted Parrish, CIO of Parrish Capital, believe that these companies, while less exciting, offer a solid way to gain exposure to AI without the high risks associated with the more expensive tech giants.
As the year progresses, it seems that the more established tech players are poised to continue outperforming their newer, high-flying counterparts, offering a more balanced, stable approach to investing in the booming AI industry. While these legacy stocks may not be the “next big thing” in the same way as the high-growth names, their adaptability and resilience are making them increasingly attractive in uncertain times.
