Cisco Earnings: Healthy Demand Lifts Our Forecast

Key Morningstar Metrics for Cisco Systems

• Fair Value Estimate: $54.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Cisco Systems' Earnings

Cisco Systems' CSCO January-quarter revenue rose 9% year over year and 1% sequentially to $14 billion. Revenue and profitability came in above management’s guidance ranges. April-quarter guidance implies flat revenue growth sequentially, and a slight drop in profitability resulting from tariffs.

Why it matters: We liked Cisco’s results and outlook, and we see it showing healthy underlying demand after the choppy period the firm has had since 2022, with customers overordering and then underordering to manage inventory. Full-year guidance beat our model and implies a better July quarter than expected.

• Cisco notched $700 million in artificial intelligence infrastructure orders in the past two quarters, and we expect strong AI revenue growth ahead. Even so, this is a small minority of Cisco’s $28 billion in revenue over the same period, and we see non-AI networking as the business' primary driver.
• High security growth reflected continued inorganic contribution from the 2024 acquisition of Splunk. Organic security growth was 4% year over year, but we expect an acceleration from these levels as Splunk integrates with Cisco’s portfolio over the next two years.

The bottom line: We’ve raised our fair value estimate to $54 per share from $50, behind a higher medium-term networking growth forecast. Shares look overvalued, and in our view reflect excess optimism for an AI business that remains a small minority of sales.

• We increased our growth forecast for Cisco’s AI infrastructure sales, which we expect to exceed $1 billion in fiscal 2026. While this should add to the growth of the firm’s networking business, even $1 billion in revenue would be 2% of Cisco’s revenue and remains a small driver to us.
• We expect the integration of Splunk to raise Cisco’s organic security growth profile by nearly 10% over the next five years, more in line with peers. The deal still looks favorable to us, and we believe it should stem Cisco’s share losses in its second-largest segment.