CSCO Stock: What to Look Out For in Cisco’s Earnings Call on Wednesday

Introduction

Cisco Systems [CSCO] is a US-headquartered company that develops, manufactures and sells networking equipment and hardware. 

In March, Cisco completed its $28bn buyout of Splunk, in a shift away from relying on one-off sales of hardware, and towards software and services such as artificial intelligence-powered (AI) data analysis. 

This stock spotlight will look at the recent AI features Cisco has launched for its products, and why enterprise AI could be a significant driver of growth next year. It will also look at its recent financial performance ahead of its Q1 2025 earnings report on Wednesday. 

New AI Features 

At its partners summit in October, Cisco unveiled a host of new AI features for contact centers, including its Webex AI Agent, AI Agent Studio and Cisco AI Assistant. 

CEO Chuck Robbins sat down with Yahoo Finance on the sidelines of the event; he declared that “2025 is going to be the year of the enterprise application”. 

“I think we’ve seen this focus on the training models that are out there, ChatGPT and Anthropic, all these models that people are using. And I think now the enterprises are really figuring out the use cases that we can deploy,” said Robbins. 

CSCO Stock Hits 52-Week High

The AI rally helped the Cisco share price to record a 52-week high of $58.09 the day after Donald Trump won the US presidential race, and it continued to trade around that high through the end of the week. The stock had hit a 52-week low of $44.50 on August 12 following a Reuters report that the company was set to cut thousands of jobs. 

CSCO stock is up 12.98% in the past 12 months through November 8 and 17.77% in the year to date. It has gained 10.57% in the past month.

Q1 Revenue Expected to Decline Year-over-Year

The official announcement of lay-offs came in the Q4 2024 earnings report on August 14. The company explained that the job cuts were part of a restructuring plan that will “allow it to invest in key growth opportunities and drive more efficiencies in its business.” 

Revenue for Q4 fell 10% to $13.6bn, while full-year sales declined for the first time since 2020. Cisco is expecting Q1 2025’s figure to be in a range of $13.65bn–13.85bn, compared to $14.7bn in the year-ago quarter. Adjusted EPS is expected to be in a range of $0.86–0.88, down from $1.11 in the year-ago quarter.

For the full fiscal year, Cisco reported software revenue, including that from its Splunk acquisition, increasing 9% year-over-year to $18.4bn, while software subscription revenue rose 15% to $16.4bn. 

Revenue across its portfolio was “incredibly balanced” and sales of wireless equipment, including switches, modems and routers, were up year-over-year, 

“We saw steady customer demand with order growth across the business as customers rely on Cisco to connect and protect all aspects of their organizations in the era of AI,” commented Robbins in the earnings release. 

Fellow security stocks Fortinet [FTNT] and Palo Alto Networks [PANW] reported a 13% and 12% rise in revenue, respectively, for their most recently reported quarters. 

Here’s how Cisco’s fundamentals stack up against those of Fortinet and Palo Alto Networks. 

Source: Yahoo Finance

While Cisco’s projected revenue growth for the next couple of years could be regarded as weak, CSCO stock could be considered undervalued, especially when compared to the P/S ratios of FTNT and PANW. 

CSCO Stock: The Investment Case 

The Bull Case for Cisco 

Robbins noted on the Q4 earnings call that he is seeing an uptick in enterprises preparing for AI applications, “even though in many cases they may not know the full range of what they will be deploying”. 

Cisco got a boost last month when Citigroup analyst Atif Malik upgraded the stock from ‘neutral’ to ‘buy’ while also hiking his price target from $52 to $62, which would be an upside of 6.79% from the November 8 closing price.

In his note to clients seen by Barron’s, Malik argued that there should be “more AI” opportunities coming, even though AI accounts for just 2% of the company’s revenue at present. 

The Bear Case for Cisco 

Cisco’s shift away from its core networking business to AI-powered cybersecurity and software solutions is ongoing. Nevertheless, networking still accounted for approximately half of the company’s revenue in Q4. 

The reliance on networking to drive sales could be a headwind in the near term. Weakening economic conditions could lead to a slowdown in enterprise spending among telecom companies and cable service providers, as happened in February 2024, when soft demand forced Cisco to slash its full-year revenue guidance. 

Future weakness could have an impact on the company’s top and bottom lines in the near-term. 

Conclusion 

Cisco is excited about the AI era and what it will bring. The company is expecting to book a billion dollars of AI product orders in the current fiscal year. There may be bumps on the road to achieving this target, however, especially if its networking business faces headwinds in the near term. 

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