Cisco’s ‘record highs’ face AI earnings reality check
Cisco is set to report its quarterly earnings after the bell on Wednesday, and Wall Street is looking for evidence that the software giant’s AI-fuelled rally still has legs.
Investors expect the Silicon Valley group to post third-quarter revenue of roughly $15.56bn (£11.52bn), up from $14.15bn a year ago, with earnings per share forecast at $1.03, according to consensus estimates.
The networking Big Tech beat has now beaten revenue expectations for 15 consecutive quarters – a streak investors will expect management to extend as demand for AI infrastructure continues to climb.
Shares in the firm have climbed almost 30 per cent this year and are trading near record highs at around $99, as investors increasingly view the company as one of the key pick-and-shovel plays of the AI boom.
While Nvidia has dominated headlines around AI chips, Cisco has benefited from a surge in spending on networking equipment needed to connect their hyperscale data centres and AI systems.
UBS analyst David Vogt said recent investment in “data centre switching, optical products, and campus demand” should help Cisco hit the upper end of its guidance range.
He also said AI hyperscaler orders are set to top $1bn for the quarter after Cisco reported $2.1bn in AI orders in the previous quarter.
Elsewhere, Evercore analyst Amit Daryanani recently raised his price target on the stock to $110, arguing investors are still “underappreciating” Cisco’s ability to sustain growth from AI infrastructure demand.
Daryanani said Cisco’s AI-related revenues could grow from roughly $3bn today, to between $12bn and $15bn over the next three to four years.
That optimism comes as hyperscale capital expenditure continues to rise, with cloud giants including Meta, Microsoft and Amazon expected to collectively spend hundreds of billions of dollars on AI infrastructure over the coming years.
Cisco margins and guidance under scrutiny
However, visible Alpha data shows Wall Street ratings split between buy and neutral recommendations, while the average analyst price target still sits below Cisco’s current share price.
Options traders are also braced for volatility, with markets pricing in a move of roughly eight per cent in either direction following results.
One key concern, it seems, is whether Cisco can maintain margins as component and memory costs rise.
JP Morgan analysts said investors will be closely watching whether Cisco can offset higher costs through pricing increases while maintaining sales momentum.
The company has already implemented several price rises over recent months as supply chain pressures linked to AI infrastructure demand continue feeding through the sector.
Cisco is also pushing further into cybersecurity and AI automation as it tries to broaden its growth story beyond traditional networking hardware.
Last week the company completed its acquisition of Israeli cybersecurity firm Astrix Security for around $400m.