We’re increasing our Cisco Systems price target after an AI-fueled beat and raise
Cisco Systems shares rose Wednesday evening after the networking company posted a quarterly rise and improved outlook. Another quarter of double-digit order growth proves that Cisco is an underrated winner in AI infrastructure development. Revenue in the company’s fiscal 2026 first quarter, which ended Oct. 25, rose 8% year-over-year to $14.88 billion, beating LSEG’s matching analyst consensus estimate of $14.76 billion. Non-GAAP earnings rose 10% year over year to $1 per share, beating expectations of 98 cents, according to LSEG data. GAAP stands for generally accepted accounting principles. CSCO YTD Mount Cisco Systems YTD See shares of Cisco Go. They rose more than 7% in after-hours trading, reaching nearly $80 per share. This is on top of a 3% move during normal trading hours. If the stock can break $80.06, it will hit an all-time high for the first time since March 2000. Shares are up nearly 25% year-to-date as of Wednesday’s close. In summary This is a justified move after an excellent quarter, highlighted in particular by accelerating growth of product orders from AI customers. During the post-earnings call, Cisco CEO Chuck Robbins attributed the strength in AI orders to the “deepening” relationship with existing customers. The company also announced the continuation of its “multi-year, multibillion-dollar campus network renewal cycle.” But all was not perfect, as the security industry was missing forecasts and revenue was falling year on year. According to management, some revenue recognition timing issues need to be resolved. Our main concern before the quarter was the security weakness. The business also missed revenue estimates in the previous quarter, and we didn’t think a rapid recovery was likely. The main reason why we made a profit of around $71 on this position on Monday was our fear that this situation would happen again. While we were right to be cautious about security, the market was ignoring this issue because networking was growing so quickly. There is no need for a recovery in security to reach the administration’s outlook, which rose well above Street forecasts on Wednesday evening. Another concern for bears heading into earnings was that Cisco would be negatively impacted by the government shutdown due to large federal agency business. Robbins noted that despite the closed government, the business was able to increase orders by a high single-digit percentage in the quarter. An increase in orders is expected when the government reopens. Why we have it Cisco Systems is an enterprise networking equipment provider that has made great strides in attracting cloud customers. The company also increased its presence in the security market by acquiring Splunk. In addition, Cisco’s long-term shift into subscription software sales, which are sticky and come with higher margins, should help improve the stock’s undemanding price-to-earnings multiple. Competitors: Arista Networks, Hewlett Packard Enterprise, Juniper Networks Latest acquisition: August 19, 2025 Started: July 17, 2025 The story goes that Cisco has become a sleeper AI play thanks to the billions of dollars it receives from hyperscaler customers. This order increase translates into huge revenue. Cisco announced that it generated nearly $1 billion in AI revenue in fiscal 2025 from hyperscalers, the largest of the Big Tech names, such as major cloud companies. During the call, Robbins said he expects to collect about $3 billion from hyperscalers in fiscal 2026. Despite this accelerating growth and subscription revenue accounting for more than half of total revenue, the stock still trades at a reasonable price-to-earnings ratio of approximately 19.5x based on the new midpoint of management’s adjusted earnings per share (EPS) outlook for the full year. We reiterate our 2 rating because we don’t like to follow stock rallies, but we’re raising our price target to $85 per share from $78. Comment Total Product orders increased 13% year-over-year, accelerating from 7% growth in the previous quarter, with growth across all geographies and customer markets. When we review Cisco, we always focus on orders because that’s the best indicator of where revenue is going. Product revenue increased 10% year over year to $7.77 billion, beating estimates of approximately $7.47 billion. Starting with the network subsegment, product orders grew at a high-teens rate, representing the fifth consecutive quarter of double-digit growth. AI infrastructure orders from hyperscaler customers were a big driver of this growth. Cisco booked $1.3 billion in orders in the quarter; This represents an increase from over $800 million in the previous quarter. The company also saw strong orders for enterprise routing, campus switching, wireless, industrial IoT and servers. Credit its close relationships with portfolio name Nvidia and Advanced Micro Devices for Cisco’s recent AI success. Last month, Cisco announced the N9100, which they call the first Nvidia partner-developed data center switch based on Nvidia Spectrum-X Ethernet switch silicon. “Available in the second half of fiscal 2026, the N9100 will provide the operational consistency and flexibility needed for sovereign and neocloud providers to build and manage AI at scale,” Robbins said. Neoclouds are the next generation of private clouds for accelerated computing. CoreWeave, which rents cloud-based Nvidia chips for AI tasks, is an example of neocloud. Cisco is also helping G42, a leading AI firm in the United Arab Emirates, to power, connect and secure large-scale AI clusters with AMD graphics processing units (GPUs). The enterprise AI story is also starting to emerge. Cisco experienced strong demand for switching, routing, and wireless products; This is an indication that customers are “investing in the connectivity required for their AI deployments,” Robbins said. Robbins announced a growing sales pipeline of over $2 billion for high-performance networking products across sovereign, neocloud and enterprise customers. This comes after Cisco received $200 million in orders from these customers in the first quarter of its fiscal year. By division, Network revenue increased 15% to $7.77 billion, beating estimates. The biggest factor behind this increase in sales was mostly due to service provider guidance coming from artificial intelligence infrastructure. Data center switches and enterprise routing also increased by double digits; and campus switching revenue increased by a high single-digit percentage. In the security division, revenues fell 2% year over year, once again missing analysts’ forecasts. It’s disappointing to see a big loss in back-to-back quarters, but management attributed the decline to a timing issue. More customers are using Splunk’s offerings through cloud subscriptions rather than on-premises deals, leading to a change in the timing in which revenue is recognized, Robbins explained. Ultimately, this transition is not a bad thing. The company favors more subscription-based revenue. Cisco completed its $28 billion acquisition of Splunk in March 2024. “We’re pleased to see more cloud subscriptions for Splunk because they enable greater adoption and expansion and allow us to deliver innovation faster to enable customers to derive value from AI Now,” Robbins said on the call. he said. In a broader sense. Cisco said it continues to see an increase in orders for some new and updated security products, which make up about a third of the portfolio, but there is a decline in ordered products. More importantly, the administration does not believe Security’s stumbles will last long. They expect revenue growth to accelerate and finish the year at a much higher rate. But even if that doesn’t happen and results don’t improve materially from here, Cisco said it’s still confident in its ability to deliver on its fiscal second quarter and full-year 2026 outlook. The Collaboration and Observability units saw a 3% decline and 6% increase in revenue, respectively; Collaboration was underestimating and Observability was meeting expectations. Services revenue increased 2% year over year to $3.81 billion, slightly above forecasts. As always, we appreciate Cisco’s consistent approach to returning cash to shareholders. The company repurchased $2 billion worth of stock during the quarter at an average price of $68.28. This looks like a great trade as the stock is knocking on the door of $80 in after-hours trading. There is $12.2 billion remaining under its authority. Cisco shares had a 2.2% annual dividend yield as of Wednesday’s closing price. Guidance Cisco expects fiscal 2026 second-quarter revenue to be between $15 billion and $15.2 billion; this is well above the consensus estimate of $14.62 billion. It also forecasts non-GAAP earnings per share to be between 1.01 and 1.03 cents, well above the consensus estimate of 98 cents. Cisco now expects revenue of $60.2 billion to $61 billion for full year 2026; This represents an increase of nearly $1 billion over the previous estimate, from $59 billion to $60 billion. This revised outlook exceeds the consensus estimate of $59.64 billion. As a result, management raised its EPS forecast to $4.14 from $4.08, up from its previous outlook of $4.00 to $4.06. This new midpoint of $4.11 is 7 cents better than the consensus analyst estimate. (Jim Cramer’s Charitable Trust, long known as CSCO, NVDA. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
