Cisco Expands AI Solutions for Growth Amid Market Challenges

Cisco Systems (CSCO) is strategically broadening its product offerings with the introduction of AI factory architecture, co-developed with NVIDIA (NVDA). This initiative is projected to enhance Cisco’s AI-driven revenue streams. As of the conclusion of the first half of fiscal 2025, Cisco secured over $700 million in AI infrastructure orders, positioning the company to likely exceed $1 billion in AI orders by the end of this fiscal year.

Enterprises utilizing AI technologies are increasingly choosing Cisco’s integrated systems, including Nexus, UCS, and others, to support their AI applications. The rising adoption of AI-powered robotics and industrial security plans bolsters Cisco’s industrial Internet-of-Things (IoT) segment. In fact, orders for Cisco’s solutions surged over 40% in the first half of fiscal 2025, with second-quarter growth exceeding 50%.

Stock Performance and Market Context

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Despite this promising growth, the critical question remains if the robust performance in AI-driven solutions can improve CSCO’s stock price in 2025. The stock has seen a decline of 6.2% year-to-date, attributed to a challenging macroeconomic landscape, escalating recession fears from tariffs affecting China, Mexico, and Canada, and increased competition in the networking market.

Cisco’s Partnership with NVIDIA

In late February, Cisco solidified its collaboration with NVIDIA to create AI-ready data center networks. The Cisco Secure AI Factory, built upon the NVIDIA Spectrum-X Ethernet networking platform, places security at its core, enabling enterprises to efficiently manage and secure AI infrastructure at any scale.

The NVIDIA-based CSCO AI POD product—encompassing both hardware and software applications—is seeing growing acceptance. The introduction of 800 gig Nexus switches leveraging Cisco’s 51.2 terabit Silicon One chip is anticipated to attract orders from AI-focused cloud clients.

Expanding AI Solutions Boosts Customer Experience

Cisco is enhancing its Agentic AI capabilities through various recent launches, including the Webex AI Agent and AI Assistant for the Webex Contact Center. Incorporating AI across security and collaboration platforms is aimed at improving customer experience (CX).

Key initiatives include the Renewals Agent, developed alongside Mistral, and a new Assistant designed to assist with Network Change Management. Furthermore, the acquisition of Deeper Insights is significant, as it enhances Cisco’s customer experience AI offerings.

Surge in Security Orders Commended

Cisco reported more than a twofold rise in security orders during the fiscal second quarter, attributed to sophisticated data management, analytics, and threat detection from Splunk. Security revenues for the second quarter of fiscal 2025 reached $2.11 billion, marking a 117% year-over-year increase driven primarily by solutions like Splunk, SASE, and Network Security.

The Cisco security division is experiencing expansion, supported by robust demand for Cisco Secure Access and XDR, each adding over 1,000 customers in the last 12 months, and boasting approximately one million enterprise users. The latest product, Cisco AI Defense, addresses the increasing risks associated with AI adoption, including data leaks and misuse of AI tools, providing critical protection for enterprises.

Positive 2025 Guidance from Cisco

Looking towards fiscal 2025, Cisco projects revenues between $56 billion and $56.5 billion, with non-GAAP earnings expected between $3.68 and $3.74 per share.

The Zacks Consensus Estimate posits Cisco’s 2025 revenues at $56.43 billion—a projected growth of 4.88% year-over-year. The earnings estimate stands at $3.72 per share, reflecting a slight decline of 0.27% from the previous year. Cisco has consistently beaten earnings expectations in the past four quarters, averaging a surprise of 4.07%.

Price and Consensus Forecast

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Find the latest EPS estimates and surprises on Zacks earnings Calendar.

Investment Outlook: Buy or Hold?

Cisco’s expanding and innovative product lineup positions the company for potential long-term success in the dynamic technology sector. The focus on AI advancement, coupled with a deeper engagement in the security market, highlights its growth avenues.

However, CSCO shares may appear overvalued, evidenced by its Value Score of D. Currently trading at a forward 12-month price/sales ratio of 4.13X exceeds both its median of 3.77X and the industry’s 3.94X, indicating a potentially stretched valuation.

Price/Sales Ratio Analysis

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Currently, Cisco shares are trading below the 50-day moving average, suggesting a bearish market trend.

Bearish Trends in CSCO Stock

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With a Zacks Rank of #3 (Hold), investors might consider delaying additional investments in CSCO until a more favorable buying opportunity arises. A complete list of today’s Zacks #1 Rank (Strong Buy) stocks can be accessed here.

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This article originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.