CSCO's Security Revenues Decline: Can Strong Portfolio Revive Growth?

Cisco Systems’ CSCO Security revenues fell 2% year over year to $1.98 billion in the first quarter of fiscal 2026. Customers shift to cloud subscriptions compared with on-premise deals for Splunk, and lower revenues from prior generation products negatively impacted top-line growth. Cisco’s Security offerings primarily include Network Security, Identity and Access Management, Secure Access Service Edge (SASE) and Threat Intelligence, Detection, and Response offerings. 

However, Cisco’s new and refreshed products, which comprise roughly one-third of its security portfolio, are expected to help in reviving top-line growth. Solutions like SecureAccess, XDR, Hypershield, AI Defense and refreshed firewalls are driving order growth. In the first quarter of fiscal 2026, Cisco saw mid-teens growth in demand for next-gen firewalls, and roughly 3,000 customers have purchased a new product since launch. 

Splunk continues to gain traction with annualized recurring revenues and product remaining performance obligations growing double digits in the first quarter of fiscal 2026. Cisco believes the shift to cloud subscriptions reflects greater adoption and expansion of Splunk products. The addition of Splunk has strengthened CSCO’s TIDR offerings. The company has been integrating Cisco Extended Detection and Response (XDR) with Splunk Enterprise Security to create a unified and highly effective solution that helps in preventing, detecting, and responding to sophisticated cyber threats. 

The Zacks Consensus Estimate for second-quarter fiscal 2026 service revenues is pegged at $2.16 billion, indicating 2.6% growth over the figure reported in the year-ago quarter.

CSCO Faces Tough Competition in the Security Domain

Cisco is facing stiff competition from Fortinet FTNT and Okta OKTA in the security domain. 

Fortinet's AI-powered security operations business is accelerating rapidly. The company powers more than 20 AI-driven solutions through its FortiAI technology across three main areas: FortiAI-Protect for secure AI usage, FortiAI-Assist for AI-assisted operations, and FortiAI-SecureAI for secure LLM and AI systems. With more than 500 issued and pending AI patents, Fortinet is well-positioned to capitalize on growing AI security demand. The company launched its Secure AI Data Center solution, the industry's first end-to-end framework specifically designed for AI workloads, delivering high-capacity connectivity and up to 69% lower energy consumption than alternative solutions. 

Okta’s offerings include Okta AI, a suite of AI-powered capabilities embedded across several products, which empowers organizations to harness AI to build better experiences and protect against cyberattacks. The company benefits from strong demand for its new products, including Identity Governance, Privileged Access, Device Access, Fine Grained Authorization, Identity Security Posture Management and Identity Threat Protection with Okta AI. The company expects revenues to see a CAGR of 16% between fiscal 2023 and fiscal 2026. Okta expects revenues between $2.906 billion and $2.908 billion for fiscal 2026, indicating year-over-year growth of 11%.

CSCO Share Price Performance, Valuation & Estimates

Cisco shares have appreciated 30.8% in a year, underperforming the broader Zacks Computer and Technology sector’s return of 24.2%.

CSCO Stock Beats Sector

The CSCO stock is trading at a premium, with a trailing 12-month price/book of 6.49X compared with the Zacks Computer - Networking industry’s 6.13X. Cisco has a Value Score of D.

CSCO Stock is Overvalued

The Zacks Consensus Estimate for second-quarter fiscal 2026 earnings is currently pegged at $1.02 per share, unchanged over the past 30 days, suggesting 8.5% growth from the figure reported in the year-ago quarter.  
 

Cisco Systems, Inc. Price and Consensus

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

The Zacks Consensus Estimate for fiscal 2026 earnings is currently pegged at $4.10 per share, unchanged over the past 30 days, suggesting 7.6% growth from the figure reported in fiscal 2025. 

Cisco currently carries a Zacks Rank #3 (Hold). 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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