Morningstar

Cisco: Ahead of Earnings, We’re On Board With the AI Growth Trajectory

We’ve raised our fair value estimate of Cisco stock.

A Cisco Systems sign is shown at Cisco Systems headquarters.
Paul Sakuma via AP
Securities in This Article
Cisco Systems Inc
(CSCO)

Key Morningstar Metrics for Cisco Systems

  • Fair Value Estimate
    : $115.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : High

We’ve refreshed our model assumptions for Cisco Systems CSCO ahead of the firm’s fiscal fourth-quarter earnings report on Aug. 12.

Why it matters: We’re more constructive on Cisco’s longer-term growth in the age of artificial intelligence. We believe the company has a durable, sticky position in AI networking and optics, structurally raising its growth and warranting a higher valuation.

  • We still see core enterprise and campus networking driving the bulk of Cisco’s results, but we expect AI to increasingly drive growth. Even as a minority of total networking sales, we expect AI to meaningfully raise Cisco’s midcycle growth profile compared to the last decade.
  • Beyond data center switching and routing for AI, we see AI raising the growth profile of the campus and enterprise networking markets. We expect enterprise inference and agentic workloads to create durably higher spending, and faster network refreshes to higher speeds, than historically.

The bottom line: We raise our fair value estimate for wide-moat Cisco to $115, from $90, to reflect durably higher growth from AI. We raise our Uncertainty rating to High, from Medium, to reflect AI spending variability. Cisco fared well in the tech sell-off in the last month, and shares look fairly valued.

  • Our valuation implies Cisco being worth 20 times our estimate of fiscal 2028 earnings. This is at the high end of the firm’s historical range, but we believe a higher multiple is warranted given structurally improved long-term growth.

Coming up: Cisco reports fiscal fourth-quarter results on Aug. 12, and we expect beats across all its AI targets. In fiscal 2027, we model $8 billion in AI revenues, well above management’s current $6 billion guide. We typically see conservative guidance from Cisco, with raises throughout the year.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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