Cisco surges as it shifts to AI, cloud and security
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Cisco Systems (NASDAQ:CSCO) surged 9% during early market action Thursday following its latest financial results that featured an earnings beat, a 7% reduction in workforce and a shift in the business’ focus.
“Management was clearly trying to message that the demand environment is returning to normal; Cisco will continue to shift investments towards AI, Cloud and Security that is resulting in a re-allocation of resources; the company is collapsing its product structure under Jeetu Patel as ‘platformization’ across categories is happening; and AI and datacenter modernizations are occurring,” said Piper Sandler analysts James Fish and Quinton Gabrielli, in an investor note.
Patel is the executive vice president and chief product officer at Cisco. He is combining networking, security and collaboration at the company.
Piper Sandler reiterated its Neutral rating and its $52 price target on the stock.
“Debate will remain around if this is sustainable given the macro, cost savings potential to margins, Splunk’s impact, and the organizational changes,” Fish added.
Wells Fargo determined the enterprise AI adoption at Cisco is a long-term positive for the San Jose-based company.
“Cisco has crossed $1B of AI orders with webscale customers to-date versus $800M reported in early-June; the company expects an additional $1B of AI product orders in FY25 (primarily backend with Ethernet and optics),” said Wells Fargo analyst Aaron Rakers, in a note. “Cisco noted that enterprise customers are now moving to modernize infrastructure for AI.”
Wells Fargo rates Cisco at Equal Weight with a price target of $57.
Meanwhile, Citi Research maintains a Neutral rating on Cisco with a price target of $52.
“The FY25 sales outlook for low-to-mid single digit revenue growth is unchanged as tough comps and conservatism offset the benefits of Splunk,” said Citi analysts Atif Malik and Adrienne Colby, in a note. “Bright spots were $1B in AI orders recognized to date and an additional $1B expected in FY25, as well as a normalizing inventory levels and order trends.”
Cisco has a Buy rating from Seeking Alpha and Wall Street analysts. However, it has a Hold rating from Seeking Alpha’s Quant system, which regularly beats the market.