Cisco’s AI Growth Story: A Tech Stock to Watch
Cisco Systems (NASDAQ: CSCO) has demonstrated solid performance recently, and its strategic importance to businesses worldwide positions it well for long-term growth in the artificial intelligence (AI) sector. The company’s stock is building on the gains of 2024, and analysts are optimistic about its future prospects.
Following a 21% return in 2024, Cisco’s stock continued its upward trajectory in early 2025. The company’s February 12th earnings report exceeded expectations, which fueled a moderate increase in share price. While Cisco’s current AI-driven business is relatively small, it is showing promising signs of expansion, and this has captured the attention of investors.
Analyzing Cisco’s AI Infrastructure Role
Cisco experienced moderate growth in the second quarter of fiscal year 2025. Revenue increased by 9% to approximately $14 billion, exceeding estimates of $13.9 billion. Adjusted earnings per share (EPS) also saw an 8% increase, reaching $0.94, which surpassed forecasts.
For fiscal year 2025, analysts project a 5% rise in sales alongside stable adjusted earnings. This outlook reflects the company’s upward revisions to its guidance. A key highlight was a surge in AI infrastructure orders, totaling $350 million for the quarter and $700 million for the first half of the fiscal year.
The company anticipates over $1 billion in AI infrastructure orders by the end of 2025. However, when compared to Cisco’s anticipated $56.5 billion in revenue for fiscal 2025, the AI orders represent only around 1.7% of the total. As a result, at this stage, Cisco is not yet a major player in AI infrastructure.
The Value of Cisco’s Splunk Acquisition
Cisco’s acquisition of Splunk has proven to be a valuable move. The security and observability segments showed significant growth, with increases of 117% and 47% respectively compared to the previous year. The acquisition is contributing to higher profit margins. Additionally, it has been beneficial to adjusted EPS. Through Splunk, Cisco is leveraging AI to enhance enterprise security, with Hypershield, a threat detection and response software, leading the way.
Cisco launched AI Defense in Q2 2025, designed to help businesses securely develop and deploy AI applications. The company reported an “phenomenal” response from early access customers and plans to make it generally available in March.
Cisco: A Key Enterprise Partner with Strong Financials
Cisco is a strong player in the enterprise space with multiple attractive qualities. The company distributed $2.8 billion to shareholders in the most recent quarter. Cisco also has a substantial buyback program, representing 6.6% of its market capitalization, enabling them to support their share price. Additionally, the company has a dividend yield of 2.5%, which is more than double the S&P 500’s 1.2% yield, ranking in the top ten among large-cap technology companies.
Cisco is also in the top 10 among its peers regarding cash reserves and free cash flow, which allows for strategic acquisitions. However, a major acquisition is unlikely in the near future, as Cisco has over $32 billion in debt due to the Splunk acquisition. Following the earnings release, analysts increased their price targets for Cisco by an average of 14%, significantly surpassing the actual 3% rise in shares after the earnings report. Their price targets suggest an average upside potential of 9% for Cisco shares.
Cisco remains a critical partner for numerous large enterprises globally. These businesses’ continued implementation of AI means Cisco is poised to benefit substantially in the long term, both in infrastructure and software solutions. The company’s established enterprise relationships provide stability, and its solid financial standing and dedication to shareholder returns firmly establish it as a potentially strong tech stock, capable of capitalizing on AI growth over time.
