Cisco (CSCO) was in focus on Thursday after the networking giant reported what some on Wall Street considered to be “solid” results and guidance. However, rising memory costs have some investors expressing concern.
Shares fell nearly 7% in premarket trading, while other networking stocks, such as Arista Networks (ANET), were fractionally lower.
Bank of America analyst Tal Liani said fourth-quarter estimates look to be “conservative,” as third-quarter revenue guidance was stronger-than-expected at growth of 9.5% year-over-year, compared to estimates of 7.3%. However, stronger hardware growth, a higher cloud mix, and a 400% year-over-year hike in memory prices are hurting gross margins.
“Product price increases could offset this, with Campus switching and compute prices up ~3% recently and additional price increases likely given memory price trends YTD,” Liani wrote in a note to clients. “Management expects the GM pressure to linger near term, but operational efficiencies could offset, leaving [operating margin] intact.”
Nonetheless, Liani, who has a Buy rating and $95 price target on Cisco, said the company is benefiting from both strong hardware and networking cycles.
“The company is well positioned for the Campus refresh cycle, with additional growth in servers, Wi-Fi, and Industrial IoT solutions,” Liani added. “Security is expected to remain weak throughout the year, but healthy demand for newer products like SASE, XDR, and refreshed firewalls is masked by Splunk’s pricing transition, a pressure expected to ease by year-end. With total revenue growth accelerating to 8.5% in 2026, OM stable at 34%, and $6.6B return in capital to shareholders YTD, we find the valuation attractive, trading at ~18.5x forward P/E.”
Evercore ISI analyst Amit Daryanani said the increase in memory costs is “nothing but a speed bump,” given Cisco’s artificial intelligence-related strength. (The company had $2.1B in AI orders in the second-quarter, compared to $1.3B in the previous quarter, and expects more than $5B in fiscal 2026 and more than $3B in revenue).
“Given the recent stock appreciation, the print isn’t enough in the near term as EPS estimates are unlikely to shift higher,” Daryanani wrote in a note to clients. “Structurally, we think CSCO is positioned to see networking acceleration in FY26 and FY27 driven by AI momentum, campus refresh, and Enterprise/Sovereign tailwinds. CSCO should end up seeing $5.00+ EPS in FY27.” He reiterated his Outperform rating and $100 price target on Cisco.
Citi analyst Atif Malik raised his price target slightly, moving to $90 from $85, as he believes in the AI-related momentum.
“While higher memory costs were partly to blame for [gross margins, management] cited a significantly higher hardware mix as the primary culprit,” Malik wrote. “CSCO modestly raised FY26 outlook by 150bps to +8.5% Y/Y on accelerating demand in networking (campus, data center switching). Quarterly AI hyperscale orders picked up to $2.1B and are now expected to be >$5B in FY26 with sales >$3B. While AI sales from neocloud, sovereign, and enterprise are not expected to be material in FY26, Jan-Q orders of $350M were up 75% Q/Q. Security remained a low point, -4% Y/Y. We raise FY26/ FY27 EPS by ~1% /~flat and move TP to $90 on a 20x multiple, vs. 19x prior, to reflect the multiple expansion for AI stocks. Maintain Buy.”