Cisco sees AI infrastructure spending by enterprises as significant opportunity

Cisco Systems (NASDAQ:CSCO) reiterated expectation for $1B of AI product orders in fiscal year 2025 and noted that the investments being made by enterprises in AI infrastructure are not included in it.

Scott Herren, CFO at Cisco was speaking at the Goldman Sachs Communacopia + Technology Conference on Tuesday and responded to questions on AI and future growth, among other things.

Herren noted that in the second half of fiscal 2024, the company saw over 30% growth from hyperscalers.

He added that enterprises are spending to be AI ready, pointing to four large transaction — which was also discussed during the company’s earnings call — with each $100M in sales. Herren noted that if one looks at why they bought the products — such as switches, routers and wifi among other things — was because the enterprises are refreshing their core infrastructure to be ready for AI.

“That is one of the things that’s driving longer term demand and that is not part of the billion dollars that we talked about AI, think of that as hyperscalers. That is a significant opportunity that drives the core business over the next several years,” Herren commented.

The executive noted that the partnership with Nvidia (NVDA) is still in the early stages, after having recently launched the “hyperfabric” capability.

In June, Cisco announced the Nexus HyperFabric AI Clusters, a new data center infrastructure solution with Nvidia for generative AI.

Herren said that Cisco is spending just over $8B a year in research and development. He also stated that the company’s capital allocation strategy has not changed.

In addition, Herren stated that Cisco has been financially disciplined and expects this to continue, noting that the recently announced restructuring was about pivoting the resources.

“Our Opex run rate at this point is somewhere between $19B to $20B a year. We are spending enough money. What we need to do is we prioritize the fastest growth areas that we serve and that is AI of course, that’s cybersecurity across the board and that is cloud and networking,” Herren commented.