Cisco Systems (CSCO) Eyes Its Share of the AI Boom

Cisco Systems (CSCO) was one of the main protagonists of the dot-com bubble in the early 2000s, briefly becoming the most valuable company in the world and trading near $80 per share—only to collapse to below $10 just two years later. Twenty-five years later, Cisco is once again approaching those nominal highs, trading at ~$77.50 per share this Friday morning.

The difference, of course, is everything. In March 2000, Cisco traded at nearly 200x earnings, powered by the belief that it was the physical backbone of the new internet economy. Today, Cisco is trading at roughly 18x earnings, with a mature business model, predictable cash flows, and strong profitability—much more of a value compounder than a high-flying growth story. The price may be similar, but the fundamentals and the narrative could not be more different.

A big part of Cisco’s climbing back toward its historical peak is the company’s strong performance this year. Between 2023 and 2024, Cisco was viewed as an old-school hardware vendor—exposed to cuts in corporate capital expenditures (CapEx), with limited AI leverage, and facing margin pressure.

But throughout 2025, Cisco managed to flip this narrative: networking returned to strong growth, not only from a cyclical rebound in its core business but also from the growing perception that Cisco has become a critical enabler of AI infrastructure. This shift resonated with investors, especially since Cisco was trading at relatively low valuations. The combination sparked a natural multiple re-rating.

The company’s latest Fiscal 2026 Q1 results reinforced this trend with Cisco delivering another clean beat across the board, showcasing strong operating leverage, and doubling down on the thesis that the business is far more resilient—and far more relevant to AI—than the market initially assumed. Together, these points give Cisco a credible path to finally breaking above its nominal all-time high set more than 25 years ago.

With that in mind, I reiterate my Buy rating on Cisco. In this article, I’ll break down the key drivers behind this view.

AI Just Rewired Cisco’s Networking Story

First and foremost, Cisco continues to deliver one of the most consistent earnings track records in large-cap tech. Its all-around beat in Fiscal Q1—EPS of $1.00 (1.9% above consensus) and revenue of $14.8 billion (0.7% ahead of expectations)—shouldn’t have come as a surprise. This was the fourteenth consecutive quarter in which Cisco topped every major estimate.

But the real source of renewed optimism, and what truly reignited hopes for a sustained re-rating, came from networking—more specifically, from AI-driven networking demand. If the market still harbored doubts about stagnation in Cisco’s core business, Q1 basically erased them. The company posted high-teens order growth, marking the fifth straight quarter of double-digit expansion.

This surge is tied directly to a now-inevitable refresh cycle in critical infrastructure. Support for Catalyst 4K and 6K switches is expiring, pushing enterprises to migrate toward the Cat9K family. At the same time, organizations are ramping demand for Wi-Fi 7, secure routers, and smarter switching gear — all in an attempt to handle heavier AI-related network traffic. The implication is straightforward: Cisco is participating in the AI megacycle, not sitting on the sidelines.

The clearest evidence is that Cisco booked $1.3 billion in AI infrastructure orders during Q1, with all major hyperscalers now customers. Even more compelling was management’s implied guidance of $3 billion in AI infrastructure revenue for Fiscal 2026. Cisco rarely provides this level of numerical specificity, and the market loves visibility—especially from a company historically known for conservative disclosures.

A Higher Floor for Cisco

Looking at margins, even though Cisco’s recent results showed some pressure on consolidated gross margin—falling from 69.3% to 68.1% YoY—operating margins actually improved meaningfully due to cost reductions, coming in at 34.4%, up 8% YoY. And for a company positioned as a value compounder, that operating leverage is exactly the kind of thing investors tend to reward.

On the flip side, arguably the most bearish data point of the quarter was the decline in operating cash flows, from $3.7 billion to $3.2 billion (about –12%). This doesn’t look structural, though. It leans more cyclical, especially considering that both backlog and RPO remain solid and that Q2 margin guidance is fully aligned with the momentum seen in Q1.

Speaking of guidance, Cisco continues to project revenue growth of roughly 7% for Fiscal 2026, with EPS expected between $4.08 and $4.14—representing about 8% YoY earnings growth. At those levels, Cisco is now trading at a forward multiple of about 18x earnings, well above its historical floor of 12–14x. However, it’s essential to acknowledge that the old floor was rooted in a completely different narrative: a cyclical hardware vendor facing stagnation and margin pressure.

The new floor reflects something else entirely—a defensive tech stock with meaningful exposure to AI infrastructure and a favorable campus refresh cycle. Even if there is some moderate euphoria in today’s multiples, I still expect Cisco to “settle” into a sustainable 17–20x earnings range as the market continues to reprice the company through an AI-centric lens. At a 20x multiple on FY26 EPS guidance, Cisco would be worth roughly $82 per share, as a base case.

What makes this floor compelling is that, despite sitting above Cisco’s old psychological ceiling, it remains consistent with the multiple expansion justified by the AI narrative—and it’s still conservative when compared with the multiples assigned to other low-volatility defensive names outside tech, such as PepsiCo (PEP), McDonald’s (MCD), or Costco (COST).

Is Cisco Systems a Buy, Hold, or Sell?

The consensus among market analysts is broadly bullish on Cisco. Of the 15 ratings issued over the past three months, 11 are Buys and the remaining four are Holds. The average price target sits at $88.55, implying roughly 14% upside over the next twelve months.

See more CSCO analyst ratings

Cisco’s Re-Rating Makes Sense

I would argue that Cisco has earned a higher valuation floor after proving the skeptics wrong. For years, bears claimed the company was stagnant, overly dependent on legacy hardware, and largely absent from the AI monetization wave. But Cisco’s Q1 results pushed the stock back toward its historical nominal peak, not just because of a cyclical rebound in networking, but because the market is increasingly viewing Cisco as an essential part of the AI infrastructure.

The acceleration in orders, as well as a multibillion-dollar campus refresh cycle, improving operating leverage, and more resilient margins, have all helped shift the narrative away from “old hardware” to “defensive tech leader” with genuine exposure to AI demand. With this backdrop, I see room for a sustained re-rating at a higher floor and continue to find the thesis constructive. For these reasons, I maintain a Buy rating on Cisco.