Heading into 2025, tech industry icon Cisco Systems (CSCO) isn’t on the short list of artificial intelligence plays for most investors, who likely focus on companies like Nvidia (NVDA) or Palantir (PLTR). But Cisco stock may look better as one of top AI stocks next year, some analysts say.
Cisco stock has advanced 15% in 2024 amid the purchase of software company Splunk (SPLK) for $25 billion in cash.
Shares in rival Arista Networks (ANET) have jumped 87% in 2024. AI workloads processed in cloud data centers require increased computing resources and networking bandwidth.
Both Arista and Cisco are targeting orders from cloud computing service providers and technology giants that operate internet data centers, known as “hyperscalers.”
Cisco Stock: AI Opportunity
“While Cisco has not gotten much credit for their AI story, Cisco is starting to see meaningful traction with webscalers around AI,” said Morgan Stanley analyst Meta Marshall in a report.
Fiscal 2025 revenue guidance for CSCO stock includes $1 billion of AI product orders, mostly driven by Ethernet networking and fiber-optic devices used to connect computer servers in data centers. Marshall noted that Cisco reported $300 million in AI-related orders in the October quarter.
Cisco recently told Wall Street analysts it’s selling data center servers equipped with Nvidia chips for processing artificial-intelligence workloads. With the push into AI servers, Cisco is moving into a hot market with players such as Dell (DELL).
Meanwhile, Cisco Chairman and Chief Executive Chuck Robbins recently spoke at a Barclays financial conference.
“Mr. Robbins highlighted the opportunity for Cisco as enterprises begin to get their infrastructures ready to support AI efforts,” said Barclays analyst Tim Long in a report. “There is pressure to modernize driven by fear of falling behind competitors and determination to capitalize on the AI boom.”
Long added: “The company has been doing well with hyperscalers and is leveraging Silicon One as a point of differentiation with customers. Demand for Cisco silicon is strong and Cisco has been investing more to support supply. Mr. Robbins feels good about exceeding the $1 billion target for the year.”
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Cisco Stock: Fiscal 2025 Guidance
For the period ended Oct. 26, Cisco earnings per share fell 18% to 91 cents, including a one-time tax benefit. Revenue fell 6% to $13.8 billion.
Excluding Splunk, product orders in fiscal Q1 rose 9%, Cisco said. In the July quarter, product orders rose 6%.
Cisco now expects full-year fiscal 2025 revenue to be in a range of $55.3 billion to $56.3 billion, vs. its earlier forecast of $55 billion to $56.2 billion.
With a 3% dividend yield, Cisco stock still finds support among institutional investors.
Cisco Stock: Shift To Software
In addition, the outlook for CSCO stock depends on spending trends for cloud computing infrastructure as well as corporate and telecom networks. Slowing sales for networking products continues to plague Cisco stock.
Cisco aims to increase recurring revenue from subscription-based software and services and shift away from its core business of selling computer network switches and routers.
With roots in data analytics software, Splunk has expanded into cybersecurity. In addition, it’s undergoing a transition to a software-as-a-service business model from on-premise products.
In the long run, Cisco stock analysts expect the company’s margins to improve as more revenue comes from software products.
Meanwhile, Hewlett Packard Enterprises‘ (HPE) acquisition of Juniper (JNPR) will make HPE a stronger, more direct competitor with Cisco, analysts say.
Cisco’s Growth Through Acquisitions
Cisco remains dominant in the corporate campus networking market. The company aims to help corporate customers build hybrid network architectures that utilize on-premise data centers and cloud-computing infrastructure.
Much of Cisco’s revenue growth has come from acquisitions, long before the 2024 Splunk deal.
In 2017, Cisco acquired software maker AppDynamics for $3.7 billion. It bought BroadSoft for $1.9 billion in late 2017.
In July 2019, Cisco acquired Duo Security for $2.35 billion, marking its biggest cybersecurity acquisition since its purchase of Sourcefire in 2013. Acquiring Duo Security bolstered Cisco in an emerging category called zero trust cybersecurity.
Cisco in 2021 bought Acacia Communications for $4.5 billion in cash.
Cisco Stock: Is It A Buy Now?
CSCO stock currently holds a Relative Strength Rating of 84 out of a best-possible 99. The best stocks tend to have an RS rating of 80 or better.
Meanwhile, Cisco stock also owns an IBD Composite Rating of 79 out of a best-possible 99, according to IBD Stock Checkup. The best growth stocks have a Composite Rating of 90 or better. IBD’s Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths.
Shares have an Accumulation/Distribution Rating of B, according to IBD MarketSmith analysis. The institutional ownership rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.
As of Dec. 30, Cisco stock has retreated back into a buy zone. Investors should monitor whether CSCO stock finds support at its 50-day moving average.
Further, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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