Cisco Systems Poised for Growth with Robust AI Demand
Cisco Systems (CSCO) is experiencing increased demand for its artificial intelligence (AI) infrastructure products. By the end of the first half of fiscal 2025, orders exceeded $700 million, and CSCO aims to surpass $1 billion in AI infrastructure orders for the full fiscal year.
Innovative Product Offerings Boost Demand
Cisco’s diverse product portfolio is driving strong sales. Enterprises focused on AI are purchasing integrated systems such as Nexus and UCS to boost their AI applications. Notably, CSCO’s AI POD product, based on NVIDIA (NVDA) technology, is gaining popularity. The introduction of 800 gig Nexus switches utilizing Cisco’s 51.2 terabit Silicon One chip in April is likely to enhance orders from AI cloud customers.
The rise in AI-driven robotics and industrial security also supports CSCO’s growth in the industrial Internet-of-Things sector. Orders surged by over 40% in the first half of fiscal 2025, with growth exceeding 50% in the recently reported second quarter. Furthermore, security orders more than doubled, largely due to the advanced data management and threat detection capabilities of Splunk. Increased interest in Cisco’s innovative firewall solution played a major role in this growth.
Overall, product orders rose 29% year over year (11% organically, excluding Splunk) in the second quarter of fiscal 2025. Annualized Recurring Revenues (ARR) reached $30.1 billion, marking a 22% increase compared to the previous year, while product ARR growth was 41%. Remaining performance obligations stood at $41.3 billion at the end of the second quarter, reflecting a robust 16% year-over-year increase.
Expansion of AI Solutions Enhances Cisco’s Future
Cisco continues to expand its AI offerings, blending Cisco 8K, Silicon One, and optical systems into its operations. These technologies are being deployed by five major webscalers to enhance their training networks.
The adoption of Nexus switches, AI servers, and AI Defense software highlights the company’s focus on simplifying AI infrastructure deployment.
A significant component of Cisco’s strategy involves integrating AI into its Security and Collaboration platforms to enhance customer experiences. Recent initiatives like the Renewals Agent, created in partnership with Mistral, and an Assistant for Network Change Management are also noteworthy advancements.
The acquisition of Deeper Insights has further expanded Cisco’s capabilities in customer experience AI services.
Security Solutions Drive Significant Revenue Growth
During the second quarter of fiscal 2025, security revenues soared by 117% year over year to reach $2.11 billion, thanks to strong performances from Splunk, Secure Access, and Network Security.
Cisco’s security segment enjoys robust demand for Cisco Secure Access and XDR. Combined, these solutions have attracted over 1,000 customers in the past year, each serving approximately one million enterprise users. Additionally, Hypershield is gaining market traction.
In the fiscal second quarter, Cisco integrated Talos with Splunk’s newly launched Enterprise Security 8.0, as well as AppDynamics with Splunk’s on-prem log observer. Other launches included Splunk on Azure, Splunk Federated Analytics, and the AI Assistant for Splunk Observability.
Among its latest initiatives, Cisco AI Defense has been introduced to facilitate and safeguard the AI transformation within enterprises, aiming to mitigate risks such as data leaks and sophisticated cyber threats using advanced network visibility.
Positive Stock Performance Driven by AI and Security
Over the past year, CSCO shares have risen by 34%, outperforming the Zacks sector average of 27.4% and the Computer – Networking industry’s rise of 32.5%.
Cisco’s expanding presence in security, AI infrastructure, and cloud solutions is a factor contributing to its enhanced share performance.
CSCO Stock’s Performance Overview
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Currently, CSCO is trading above its 50-day and 200-day moving averages, sending a bullish signal for investors.
Trading Levels Indicate Positive Trends
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Despite its promising performance, CSCO stock currently faces challenges regarding valuation, reflected in its Value Score of D, indicating a possibly stretched valuation.
With a forward 12-month price/sales ratio of 4.48X, CSCO trades at a premium compared to its median of 3.74X and the industry standard of 4.09X.
Price/Sales Ratio Analysis
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Cisco Projects Strong Revenue for Fiscal 2025
Cisco anticipates revenues in fiscal 2025 to range between $56 billion and $56.5 billion, reflecting an increase from its previous forecast of $55.3 billion to $56.3 billion. Non-GAAP earnings are expected to fall between $3.68 and $3.74 per share, also an increase from the prior guidance of $3.60 to $3.66 per share.
The Zacks Consensus Estimate anticipates Cisco’s 2025 revenues to reach $56.54 billion, signifying a 5.09% year-over-year growth. The projected earnings of $3.67 per share suggests a slight decline of 1.61% compared to last year.
Cisco consistently beat the Zacks Consensus Estimate for earnings over the past four quarters, with an average surprise of 4.07%.
Cisco Systems, Inc. Price and Consensus
Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Conclusion
Cisco’s innovative portfolio positions the company for ongoing success in a rapidly evolving technology market. The focus on AI, combined with strengthening security capabilities, supports a positive growth forecast.
With CSCO ranked as a Zacks #2 (Buy), investors might consider buying the stock now to benefit from its future growth potential. For additional insights, view the complete list of today’s top Zacks #1 Rank (Strong Buy) stocks.
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