Last Update 04 Dec 25

CSCO: AI Networking Cycle Will Offset Security And ESG Uncertainty

Analysts modestly raised their price target on Cisco Systems to $87 from $77, citing a multi year networking and AI infrastructure growth cycle, stronger than expected revenue and operating margins, and confidence that management’s conservative outlook can be exceeded, despite lingering security headwinds.

Analyst Commentary

Bullish analysts see Cisco as entering a multi year upcycle, underpinned by artificial intelligence infrastructure demand, a broad networking refresh and resilient profitability metrics that justify higher valuation multiples.

Several firms have raised price targets into the high 70s and upper 80s range, arguing that Cisco's execution in core networking and disciplined cost control are driving revenue and operating income above prior expectations, even as parts of the portfolio lag.

Bullish Takeaways

Bullish analysts highlight a multi year growth cycle in AI infrastructure and large scale campus refresh projects, which they believe can support sustained mid single digit or better revenue growth and upside to current estimates.
Stronger than expected networking performance is viewed as more than offsetting softness in security, helping Cisco deliver revenue and operating margins ahead of consensus and supporting upward target revisions.
Some expect Cisco's operating margin and return on equity to remain above peer averages, seeing room for multiple expansion as the company executes on its cost structure and mix shift toward higher value offerings.
Management's guidance for fiscal 2026 is widely seen as conservative, with bullish analysts expecting Cisco to exceed its targets as AI orders, hyperscaler demand and campus refresh activity continue to build.

Bearish Takeaways

Bearish analysts and more cautious investors flag ongoing security weakness as a damaged leg of the growth story, raising questions about Cisco's ability to re accelerate that segment in a crowded competitive landscape.
Some see the recent outperformance as heavily dependent on networking and AI infrastructure cycles, warning that any slowdown in hyperscaler or enterprise spending could pressure growth and challenge elevated expectations.
There is concern that, after recent share gains and target hikes, a meaningful portion of the AI and margin upside may already be reflected in the stock, limiting further valuation rerating without clear incremental catalysts.
Cautious voices also point to execution risk around large scale campus upgrades and integration of newer offerings, suggesting that missteps could compress margins and undermine the case for premium valuation multiples.

What's in the News

Germany is moving closer to banning Huawei from 5G networks, potentially opening share gains for rivals such as Cisco in European telecom infrastructure (Light Reading).
The European Commission is weighing a binding EU wide ban on high risk vendors like Huawei and ZTE from member state networks, which could further boost Cisco's role in regional network buildouts (Bloomberg).
The U.S. Commerce Department has proposed banning TP Link product sales over national security concerns tied to China, spotlighting alternative networking suppliers including Cisco in consumer and SMB markets (Washington Post).
An Associated Press investigation detailed how U.S. tech firms including Cisco previously helped enable elements of China's digital surveillance state, adding to ESG and geopolitical scrutiny for large networking and AI infrastructure vendors (AP).
Germany and EU policy shifts on Chinese vendors align with Cisco's push into AI ready secure networking, positioning the company as a key Western supplier amid rising security and sovereignty requirements in critical infrastructure (policy reports cited above).

Valuation Changes

Fair value estimate remains unchanged at approximately $84.81 per share, indicating no revision to intrinsic value despite updated assumptions.
The discount rate has risen slightly from about 8.22 percent to 8.25 percent, reflecting a modest increase in the required rate of return.
Revenue growth is effectively unchanged at roughly 5.87 percent, suggesting a stable outlook for top line expansion.
The net profit margin is effectively unchanged at about 21.41 percent, indicating consistent expectations for long term profitability.
The future P/E has edged down slightly from about 28.41 times to 28.30 times, signaling a marginally lower valuation 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