Cisco keeps bullish views at Wall Street after Q1 beat despite unchanged AI outlook

Cisco Systems’ (NASDAQ:CSCO) stock dipped about 1% premarket on Thursday as the first quarter beat was offset by “only a slightly raised” fiscal year 2025 growth outlook and an unchanged Al guidance, according to Citi.

Citi maintained its Buy rating on the stock, noting that mixed October quarter results are overshadowed by the likely benefits to the company from an expanding Al networking opportunity and improving valuation.

The firm raised the price target on Cisco’s shares to $64 from $62.

Analysts led by Atif Malik said that a modest beat and raise, a better-than-expected Al orders, and promising trends in core networking orders were offset by only a slightly raised fiscal year 2025 growth outlook and an unchanged Al guidance. The latter is surprising as quarterly Al orders were more than $300M, versus a $1B fiscal 2025 target, and four of Cisco’s six cloud customers saw over 100% order growth year-over-year, the analysts noted.

The analysts added that Organic Security growth decelerated from over 6% in the July quarter to only over 2% as Cisco’s US Federal business was hit by budgetary related challenges which will persist through the January quarter.

Improving gross margin was a bright spot, up 220bps year-over-year, partly due to Splunk, according to the analysts.

BofA also reiterated its Buy rating and increased its price target on the stock to $72 from $60.

Analysts Tal Liani and his team said that underlying growth trends are tracking better than expected. The first quarter revenue growth of -5.6% was slightly better than the Street’s forecast of -6.1% and EPS of $0.91 had a $0.04 beat to consensus.

Fiscal year 2025 revenue guidance was raised by about $200M, mostly due to first quarter results and second quarter guidance beat, the analysts added. Liani and his team see room for growth acceleration in the second half of 2025 on the back of a strong Cloud/AI and Security order growth.

Meanwhile, Morgan Stanley kept its Overweight rating on the stock citing opportunity for outperformance on a spend recovery

The firm increased the price target on the shares to $62 from $58.

Analysts led by Meta Marshall said Cisco first quarter results exceeded expectations slightly, as Splunk outperformed expectations (Splunk’s revenue was about $1.2B in the quarter). Cisco’s gross margins came in 183bps above expectations, the highest level in 20 years, driven by Splunk and a duty drawback.

Cisco also saw meaningful Webscale AI traction with over $300M of AI orders in the first quarter, the analysts added. However, they noted that U.S. Federal is an area of weakness in the quarter, which impacted the security segment in particular.

Goldman Sachs maintained its Neutral rating noting that Cisco’s AI order strength offset the public sector weakness.

The firm lowered the price target on the stock to $56 from $51.

Analyst Michael Ng and his team said that the weakness in U.S. Federal, which was more pronounced in October, was due to the Fiscal Responsibility Act, which expires at the end of 2024. Cisco believes these Federal orders are delayed, not lost.

Webscale, which is a subset, within Service Provider and Cloud, was a bright spot with orders growing triple digits including more than $300Mf AI orders and four webscale customers growing triple digits year-over-year (Meta Platform representing about 10% of webscale AI orders), according to the analysts.

Ng and the other analysts noted that the AI momentum puts Cisco well on track to exceed its $1B AI order target for fiscal year 2025.

Related stocks: Shares of Arista Networks (ANET), Motorola Solutions (MSI), Fortinet (FTNT) and Juniper Networks (JNPR) were largely flat premarket on Thursday.