Cisco Stock: Buy or Sell?

SUMMARY

Parkev Tatevosian, CFA, analyzes Cisco Systems' recent financial performance, highlighting significant revenue growth fueled by AI and data center expansion. He maintains a buy rating, citing attractive valuation and improving profitability, while noting a cautious conviction due to infrequent coverage.

MAIN POINTS

• Cisco reports 18% revenue growth and $9.3 billion in AI infrastructure orders, with management forecasting revenue to approach $75 billion. [0:00]
• Revenue has grown from $47 billion in 2017 to $63 billion recently, driven by acquisitions, organic growth, and increased data center and AI spending. [1:00]
• Cisco's operating profit margin stands at 25% and could rise to 30% as AI boosts internal efficiency and returns on invested capital improve. [2:00]
• Despite a 66% stock price increase over the past year, Cisco's valuation remains attractive as business fundamentals outpace share price growth. [3:01]
• Cisco trades at a forward P/E of 20, with a discounted cash flow valuation estimating fair value at over $140 per share versus a market price of $112. [4:01]
• The analyst maintains a buy rating with low conviction due to infrequent coverage, but notes potential for increased coverage if performance persists. [5:00]

DETAILED ANALYSIS

Cisco Systems has experienced a notable transformation, shifting from a reputation as a slow-growth company to achieving double-digit revenue increases. In its most recent quarter, the company reported 18% revenue growth, with AI infrastructure orders reaching $9.3 billion for fiscal year 2026. This surge is attributed to expanding opportunities in data center interconnectivity and partnerships with major hyperscale clients.

Over the past decade, Cisco's revenue has climbed from approximately $47 billion in 2017 to $63 billion, with both acquisitions and organic growth contributing to this trajectory. The proliferation of generative AI and increased data center spending have further fueled this momentum, and management projects revenue to approach $75 billion in the upcoming year.

Profitability metrics are also on an upward trend. Cisco's operating profit margin currently stands at 25%, and efficiency gains from AI-driven internal processes—such as resolving hundreds of thousands of support tickets—are expected to push margins closer to 30% over the next two years. The company's return on invested capital (ROIC) has improved to 16.83%, surpassing its weighted average cost of capital, and there is potential for this figure to reach historic highs if current trends continue.

From a valuation perspective, Cisco's stock has appreciated significantly, rising over 44% year-to-date in 2026 and 66% over the past twelve months. Despite this, the company's forward price-to-earnings ratio remains reasonable at 20, having increased from 15 at the start of the year but still below earlier peaks of 28. Updated discounted cash flow analysis estimates Cisco's intrinsic value at over $140 per share, compared to a current market price of $112, indicating an upside potential of about 26% over the next 12 to 18 months.

The company's relatively low beta of 0.87 suggests lower risk compared to the broader market. While the analyst maintains a buy recommendation, the conviction level is moderate due to less frequent coverage, though continued strong performance and attractive valuation could prompt increased attention in the future.

LINKS

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