Cisco Drops 6% Post Q4 Results: Time to Buy CSCO Shares on the Dip?

Cisco Systems CSCO shares have dropped 6% in the past couple of sessions following the fourth-quarter fiscal 2025 results reported on Wednesday (Aug. 13). The drop can be attributed to apparently slowing momentum in networking revenues, which grew 12% year over year to $7.63 billion, in the reported quarter. However, we believe the dip presents an opportunity for investors to buy the CSCO stock given its strong AI momentum.

In the fourth quarter of fiscal 2025, AI Infrastructure orders from webscale customers exceeded $800 million, bringing the total revenues to $2 billion in fiscal 2025, double the management’s original expectation. Product orders from service providers and cloud customers jumped 49% year over year in the reported quarter. This was driven by triple-digit order growth in webscale customers, with orders from each of the four out of the top six webscale customers growing in the triple digits. 

Cisco reported strong growth in Annual Recurring Revenues (ARR), Remaining Performance Obligations (RPO) and subscription revenues in the reported quarter. ARR was $31.1 billion, up 5% with product ARR growth of 8%. Total subscription revenues increased 3% year over year to $7.9 billion and accounted for 54% of Cisco’s fiscal fourth-quarter revenues. Total RPO increased 6% year over year to $43.5 billion, and Product RPO grew 8%, and total short-term RPO was $21.7 billion, up 4%. Growing recurring revenue base reflects strong future growth prospects, which is expected to help CSCO stock perform well over the long term.

Year to date (YTD), CSCO shares have appreciated 11.8%, underperforming the Zacks Computer & Technology sector, as well as close peers Broadcom AVGO and Arista Networks ANET. While the broader sector has appreciated 13.7%, shares of Broadcom and Arista Networks have appreciated 32.1% and 24.2%, respectively, over the same timeframe.

CSCO Stock’s YTD Performance

Expanding Portfolio to Boost Cisco’s Prospects

Cisco’s aggressive AI push and growing security dominance have been major growth drivers. Rapid acceleration in the capacity requirements of the network due to unprecedented levels of network traffic and an ever-evolving threat landscape bodes well for Cisco’s prospects. The AI opportunity further gets a boost from Cisco’s partnership with NVIDIA NVDA. 

Networking product orders grew double digits (for the fourth consecutive quarter) in the fiscal fourth quarter, driven by webscale infrastructure, switching, enterprise routing, industrial IoT and servers. Silicon One powered smart switches are very much in demand. Orders for the industrial IoT portfolio, comprised of ruggedized catalyst products, grew double digits (for the fifth consecutive quarter). Cisco expects momentum to continue in fiscal 2026 as more and more strategic infrastructure and manufacturing come onshore to the United States.

Cisco’s security business is benefiting from strong demand for both Cisco Secure Access, Hypershield and XDR. In the fourth quarter of fiscal 2025, orders grew mid-single-digit. Splunk and Cisco synergies reported 14% year-over-year growth in new logos for Splunk.  Secure Access, XDR, Hypershield and AI Defense added 750 new customers collectively in the reported quarter.

Cisco’s expanded partnership with NVIDIA, under which the companies plan to offer solutions that help build AI-ready data center networks, is a game-changer. Integration of Cisco Nexus switches with NVIDIA’s Spectrum-X architecture is offering low latency, high-speed networking for AI clusters, driving enterprise AI orders. The Cisco Secure AI factory with NVIDIA provides a trusted blueprint for building secure AI-ready data centers for enterprises, sovereign cloud providers and newly emerging Neocloud providers.

CSCO Offers Positive 2026 Guidance

For fiscal 2026, CSCO expects revenues to be $59-$60 billion compared with $56.7 billion reported in fiscal 2025. Non-GAAP earnings are expected between $4 per share and $4.06 per share compared with $3.81 per share reported in fiscal 2025.
 

Cisco Systems, Inc. Price and Consensus

Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote

The Zacks Consensus Estimate for CSCO’s fiscal 2026 revenues is pegged at $56.58 billion, indicating growth of 5.2% on a year-over-year basis. The consensus mark for CSCO’s fiscal 2026 earnings is currently pegged at $4.02 per share, up a couple of cents over the past 30 days, indicating year-over-year growth of 5.5%.

Cisco Shares Are Overvalued

Cisco shares are trading at a premium, as suggested by the Value Score of D. In terms of the forward 12-month price/sales, CSCO is trading at a premium of 4.65X, higher than the Zacks Computer Networking industry’s 4.14X.

Price/Sales Ratio (F12M)

However, Cisco shares are trading at a discount compared with Arista Networks and Broadcom. In terms of the forward 12-month P/S, Arista Networks and Broadcom shares are trading at 17.78X and 19.87X.  

Cisco stock is currently trading above the 200-day moving average, indicating a bullish trend.

CSCO Stock Trades Above the 200-Day SMA

Here’s Why Cisco Stock is a Buy

An expanding portfolio makes Cisco well-positioned for sustained growth in an evolving tech landscape. AI push is noteworthy, along with a growing footprint in the security space. These trends bode well for CSCO’s long-term prospects. 

CSCO currently carries a Zacks Rank #2 (Buy), suggesting that it may be wise for investors to start accumulating the stock right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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