Cisco Expands AI Portfolio for Data Centers: Why the Stock is a Hold

Cisco Systems CSCO is expanding its AI portfolio for data centers with new solutions like the Unified Nexus Dashboard, Cisco Intelligent Packet Flow, configurable AI PODs, and 400G bidirectional (BiDi) optics. Cisco is leveraging its collaboration with NVIDIA NVDA to strengthen its footprint in the AI infrastructure domain. Cisco secured AI infrastructure orders worth more than $1 billion to date in fiscal 2025, a quarter ahead of schedule. These latest solutions are expected to drive further growth.

Cisco’s Unified Nexus Dashboard consolidates services across LAN, SAN, IPFM, and AI/ML fabrics into a single pane of glass. These capabilities will be available in the next Nexus Dashboard release in July 2025. Available from Tuesday (June 10), Cisco Intelligent Packet Flow uses real-time telemetry and congestion awareness across AI fabrics that make it easier to detect issues proactively. The new 400G BiDi optics are set to be available in the second half of the calendar year 2025.

Cisco’s aggressive AI push and growing security dominance, as reflected by the third quarter of fiscal 2025 results, are noteworthy. Security revenues jumped 54% year over year, while Networking increased 8%. Total product orders grew 20% year over year or 9% on an organic basis. While Networking product orders grew double-digits, Campus switching orders grew in the high single digits in the reported quarter. WiFi 7 orders increased triple-digit on a sequential basis. The momentum is expected to continue in the near term thanks to an expanding portfolio and collaboration with NVIDIA.

In terms of share price movement, Cisco shares have appreciated 8.4% year to date (YTD), outperforming the Zacks Computer & Technology sector’s return of 14.3%. Cisco shares have outperformed Arista Networks ANET and Extreme Networks EXTR YTD, shares of which have dropped 14.8% and 0.3%, respectively.

CSCO Stock’s Performance

So, what should investors do with the Cisco stock? Let’s find out.

Cisco-NVIDIA Collaboration is a Game Changer

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. Cisco Secure AI Factory with NVIDIA is founded on the NVIDIA Spectrum-X Ethernet networking platform. Security is at the core of the solution and helps enterprises simplify, deploy, manage and secure AI infrastructure at any scale. NVIDIA Spectrum-X Ethernet networking based on Cisco Silicon One supports NX-OS, Nexus Hyperfabric AI and SONiC deployments. 

Cisco-NVIDIA showcased the first technical integration of Cisco G200-based switches and NVIDIA NICs at Cisco Live. Meanwhile, the NVIDIA RTX PRO 6000 Blackwell Server Edition GPU is now available to order with Cisco UCS C845A M8 servers. Cisco is strengthening its relationship with NVIDIA by including Cisco AI Defense and Cisco Hypershield in the NVIDIA Enterprise AI Factory validated design.

CSCO’s Growing Security Business is a Key Catalyst

Cisco’s strategy of infusing AI across Security and Collaboration platforms and developing Agentic capabilities across the portfolio is a key catalyst. It is leveraging Agentic AI to improve customer experience. The launch of Renewals Agent, an Agentic AI-driven solution co-developed with Mistral, and a new Assistant to help customers digitize and de-risk Network Change Management have been noteworthy developments in this regard.

Cisco’s security business is benefiting from strong demand for both Cisco Secure Access, Hypershield and XDR. On a combined basis, these solutions added more than 370 customers in the reported quarter. The acquisition of Snap Attack enhances Splunk’s capability.

CSCO Offers Positive 2025 Guidance

For fiscal 2025, CSCO expects revenues to be $56.5-$56.7 billion, up from the previous guidance of $56-$56.5 billion. Non-GAAP earnings are now expected between $3.77 per share and $3.79 per share, better than the previous guidance of $3.68-$3.74 per share.

The Zacks Consensus Estimate for CSCO’s fiscal 2025 revenues is pegged at $56.59 billion, indicating growth of 5.18% on a year-over-year basis. The consensus mark for CSCO’s 2025 earnings is currently pegged at $3.79 per share, up by six cents over the past 30 days, indicating year-over-year growth of 1.61%.

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 4.32X, higher than the Zacks Computer Networks industry’s 4.12.

Cisco shares are trading at a premium compared to Extreme Networks and NETGEAR. In terms of the forward 12-month P/S, Extreme Networks shares are trading at 1.83X, while NETGEAR is trading at 1.22X.  

Price/Sales Ratio (F12M)

Here’s Why Cisco Stock is a Hold

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. So, investors who currently hold the stock should continue to do so.

The stock is currently trading above the 50-day and the 200-day moving averages, indicating a bullish trend.

CSCO Stock Trades Above the 50-Day & 200-Day SMAs

However, a challenging macroeconomic condition, as well as stiff competition in the networking and security domain, is expected to hurt Cisco’s prospects in the near term. A stretched valuation is a concern.

CSCO currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise for investors to wait for a better point to start accumulating the stock. 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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