Cisco, IBM och nio andra techpärlor inför 2024

While the cool tech kids have spent the year partying like it’s 1999, some of the industry’s top names have been stuck at home, feeling alone and unloved. Don’t feel bad for them, though—their loneliness is creating opportunity for you.

As I noted in this space last week, it has been a spectacular year for technology stocks generally, and for the megacaps known as the Magnificent Seven, in particular. On average, the price of those stocks—Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Meta Platforms, and Tesla—have more than doubled this year, while an equally weighted version of the S&P 500 has gained less than 4%.

That situation seems unsustainable. If you believe that tech stocks go higher from here—and, as I wrote last week, I do—it’s logical to think the rally is destined to broaden out. With that in mind, I dug around my watch list for names worth considering as investors start hunting for new ideas in 2024. To be clear, these are high-level thoughts—I’m not recommending you buy them all, and this isn’t a list of my favorite stocks. But I find them all intriguing for reasons I detail below.

HP Inc.: A few weeks back, I wrote about the imminent emergence of the “AI PC,” personal computers that will have a new class of AI-capable microprocessors. I noted that both HP and Dell Technologies would be likely beneficiaries of the trend. But while Dell shares have rallied 79% this year, HPQ is up just 9%. Dell made it pretty clear in reporting results a few days ago that PC demand should rebound in 2024 after a two-year slide, driven not only by AI PCs but also a corporate PC refresh as Microsoft’s support for Windows 10 ends. Separately, the wave of PCs purchased in the early days of the pandemic is aging, with many likely to be replaced next year or the year after. HP trades for just eight times earnings and offers a nearly 4% yield.

Hewlett Packard Enterprise: The other HP makes stuff you likely don’t use: servers, supercomputers, and networking gear. The big story here is supercomputing (it owns the old Cray business) and AI. Sales for that unit spiked 37% in the latest quarter, blowing past Wall Street estimates. HPE’s high-powered systems are well-suited for building AI models, and orders are piling up. This past week the company unveiled an expanded relationship with Nvidia. HPE has seen shrinking revenue in recent quarters due to slower demand for data center servers, but a turn is coming. The stock is up a measly 6% this year, and, like the other HP, it trades for only eight times earnings.

SoftBank Group: The Japanese tech holding company had a rotten year—the stock is off 3%, and it suffered considerable losses on some of the bets it made in the Vision Fund. (WeWork, for instance.) But SoftBank remains absurdly undervalued. Its 90% stake in Arm Holdings, the newly public chip design firm, on its own accounts for 95% of SoftBank’s market capitalization. That means investors are giving almost no value to the company’s big pile of cash and its stakes in T-Mobile, Deutsche Telekom, and Japanese wireless company SoftBank Corp. It also overlooks the Vision Fund, which has slices of noteworthy private companies like Fanatics and ByteDance.

When the IPO window reopens, the Vision Fund’s fortunes could turn around. Meanwhile, bulls see the potential for a big share buyback.

Cisco Systems: The networking firm’s shares are up just 2% this year, amid ongoing concerns about demand. Cisco continues to feel reverberations from Covid-era supply-chain disruptions. For a while, orders piled up and revenue tumbled, with Cisco challenged to build systems. Then parts shortages eased, and revenue soared, as Cisco drained its backlog. Now we’re in phase three, with customers sitting on tons of uninstalled equipment, spurring a drop in orders. Analysts currently hate the stock, largely because of Cisco’s forecast for a 7% revenue drop in the current quarter. But Cisco still dominates networking—and should get a long-term boost from the AI build-out. Cisco shares are close to a 52-week low, and trade for just 13 times estimates for the April 2025 fiscal year.

Fab bets: Texas Instruments is down 8% amid soft chip demand from industrial customers, but it has sharply underperformed rivals like ON Semiconductor and NXP Semiconductors. The company has its own fabs, a valuable commodity as the U.S. pushes for independence from Asian chip makers. Two other fab bets: Tower Semiconductor, off 37%, had a deal at twice the current stock price to sell to Intel, before regulators scuttled the agreement. Tower has fabs in Israel, Japan, and the U.S. Also consider GlobalFoundries, which is flat for the year amid a cyclical slide in chip demand.

Other names to explore: Corning, the specialty glassmaker, is off 11% this year, hurt by soft handset sales and weakness in telecom equipment, among other things. Okta, the leader in identity-management software, is a smart company with a strong CEO in Todd McKinnon that is in the doghouse following an ugly data breach. The stock is off 2%.

Ciena, off 10%, has been hurt by a slowdown in equipment spending by telcos, but it has growing business from cloud providers; its earnings are coming up in a few days.

Finally, IBM is up 13% this year, and it pays a 4% dividend, so it isn’t quite as ignored as some others. Still, it remains my favorite underappreciated AI play, and it’s gaining traction with its WatsonX platform for enterprise AI.