CSCO: AI Networking Cycle Will Drive Multi Year Upside Despite Security Weakness

Analysts have nudged their fair value estimate for Cisco Systems slightly higher to approximately $85 per share, up from about $84.80. They cite a solid multi year networking and AI driven growth cycle, better than expected operating margins, and rising Street price targets, despite ongoing security softness.

Analyst Commentary

Street research on Cisco remains broadly constructive, with multiple recent target raises reflecting higher confidence in the company’s execution through the current networking and AI investment cycle.

Bullish Takeaways

Bullish analysts have lifted price targets into the mid to high $70s and upper $80s range, arguing that current valuation does not fully reflect a multi year AI and networking driven growth cycle.
Several notes highlight that revenue is running modestly ahead of consensus, with operating income margins tracking better than expected. This supports the view that Cisco can sustain above average profitability.
AI related demand is a central pillar of the bullish case, with billions of dollars in backlog and new orders from hyperscalers and enterprise customers viewed as an early stage of a longer cycle.
Positive commentary around a large scale campus refresh and an improving security trajectory underpins expectations that Cisco can layer incremental growth drivers on top of its core switching and routing franchises.

Bearish Takeaways

Bearish analysts, or those more cautious, note that security softness has damaged one leg of the original growth thesis. This raises questions about how durable mix and margin gains will be if that segment does not re accelerate.
Some commentary frames recent target increases as largely catch up to near term beats rather than a step function change in long term earnings power. This implies less upside from current valuation levels.
Equal weight stances point to execution risk around converting AI and campus refresh pipelines into sustained, high quality revenue growth through fiscal 2026 and beyond, especially if macro conditions or IT budgets tighten.
There is also concern that, as networking demand normalizes from current strength, Cisco will need faster growth in software, security, and recurring revenues to justify premium multiples versus historical averages.

What's in the News

Germany and the EU are moving closer to binding restrictions that could ban Huawei and ZTE from 5G and broader telecom networks. This positions Cisco as a key alternative supplier in Europe and could open significant share gain opportunities in carrier infrastructure (Light Reading, Bloomberg).
The U.S. Commerce Department has proposed banning sales of TP-Link products on national security grounds. This could shift some consumer and SMB networking demand toward competitors including Cisco in WiFi and routing gear (Washington Post).
Cisco, AMD, and HUMAIN plan a joint venture in Saudi Arabia to build up to 1 GW of AI infrastructure by 2030, with Cisco as an exclusive technology partner supplying networking and data center technology for large scale, AI focused build outs in the region.
Cisco launched multiple AI centric platforms, including Cisco IQ for AI powered lifecycle management, new Security Cloud Control capabilities for MSPs, and Cisco Unified Edge and N9100 data center switches. These launches underscore a broad push to make its networking, security, and observability stacks foundational to enterprise and sovereign cloud AI deployments.
New client wins and collaborations, including Asiacell's deployment of Cisco's AI driven Provider Connectivity Assurance platform and expanded Meraki based secure networking with Comcast Business, highlight growing adoption of Cisco's AI ready networking across telecom and enterprise customers.

Valuation Changes

Fair Value Estimate rose slightly from approximately $84.81 to about $85.24 per share, reflecting a modest uptick in intrinsic value assumptions.
Discount Rate increased marginally from roughly 8.25 percent to about 8.26 percent, implying a slightly higher required return in the valuation model.
Revenue Growth remained effectively unchanged at around 5.87 percent, indicating no material revision to long term top line growth expectations.
Net Profit Margin remained effectively unchanged at roughly 21.41 percent, suggesting stable long term profitability assumptions.
Future P/E rose slightly from about 28.3x to approximately 28.5x, pointing to a modestly higher multiple applied to forward earnings.

Accelerating AI infrastructure investment and integrated security within networking position Cisco to capture surging demand, supporting durable revenue and margin expansion.
Growth in subscription-based and software offerings strengthens revenue predictability, boosts margins, and reinforces Cisco's transition to a high-visibility earnings model.
Intensifying competition, evolving technology trends, and challenges in new revenue streams and acquisitions threaten Cisco's growth prospects, margins, and long-term financial stability.

Catalysts

About Cisco Systems

Designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China.What are the underlying business or industry changes driving this perspective?

The rapid acceleration in AI infrastructure investment-highlighted by record AI infrastructure orders from webscale/cloud customers (doubling targets to $2B in FY25) and continued strength in order pipeline-positions Cisco to benefit from surging demand for high-performance, AI-optimized networking hardware, which is expected to drive both revenue and margin expansion as next-generation networks scale globally.
Enterprises and governments are in a sustained cycle of digitizing operations, with Cisco seeing widespread adoption of refreshed networking (Cat9k, smart switches, ruggedized industrial IoT) and security products across industries; this digital transformation trend is expected to underpin steady order growth and recurring revenue acceleration, reinforcing both top-line and earnings visibility.
Order growth and robust product mix in AI and security solutions, coupled with high momentum from cloud and telco segments, signal ongoing participation in the proliferation of cloud data centers and hyperscale deployments, which is poised to expand Cisco's addressable market and support durable, above-trend revenue growth.
High adoption of subscription-based and software offerings-evidenced by recurring product revenue (ARR up 8%, subscription revenue at 54% of total)-indicates Cisco's successful shift to a higher-margin, more predictable revenue model, expected to improve net margin stability and support long-term earnings growth.
Cisco's deep integration of security into networking, accelerated innovation in AI-driven solutions (AgenticOps, AI Canvas), and strategic partnerships (NVIDIA, AMD) create a competitive moat as customers face rising cyber threats, laying the foundation for continued expansion in security revenues, pricing power, and net margin improvements.

Cisco Systems Earnings and Revenue Growth

Cisco Systems Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Cisco Systems's revenue will grow by 4.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 18.0% today to 21.4% in 3 years time.
Analysts expect earnings to reach $14.0 billion (and earnings per share of $3.45) by about September 2028, up from $10.2 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.5x on those 2028 earnings, up from 26.2x today. This future PE is lower than the current PE for the US Communications industry at 27.2x.
Analysts expect the number of shares outstanding to decline by 0.94% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Cisco Systems Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Accelerating shift to cloud-based networking and increasing dominance of hyperscale cloud providers, who are internalizing more networking equipment, could reduce Cisco's addressable market and undermine long-term hardware and software revenue growth.
Growing competition from low-cost Asian manufacturers and disruptive startups, as well as increasing adoption of open-source and software-defined networking (SDN) solutions, may lead to price pressure and margin compression, ultimately impacting net margins and earnings.
Execution risk exists in successfully transitioning to recurring revenue models and driving growth in new software and security offerings; current security and services revenue growth is lagging company targets, which could constrain medium
to long-term earnings and margin expansion.
Cisco's heavy reliance on large AI infrastructure orders from a relatively small set of hyperscale and webscale customers introduces cyclicality and risk of order volatility; a slowdown in cloud or AI spending could lead to revenue growth deceleration.
Ongoing integration challenges from large acquisitions (e.g., Splunk) and the complexity of adapting legacy product lines to new AI, cloud, and security demands may result in operational inefficiency and increased costs, negatively impacting overall profitability and financial stability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $75.815 for Cisco Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $87.0, and the most bearish reporting a price target of just $61.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $65.2 billion, earnings will come to $14.0 billion, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 8.4%.
Given the current share price of $67.34, the analyst price target of $75.81 is 11.2% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

CSCO: Enterprise Networking And AI Demand Will Support Steady Upside Amid Sector Risks