Networking equipment provider Cisco Systems, Inc. (NASDAQ:CSCO)’s shares are up by more than 60% over the past year and by more than 40% year-to-date. With the AI buildout in full swing, the firm has benefited from the demand for its products from data centers. This was evident through Cisco Systems, Inc. (NASDAQ:CSCO)’s fiscal Q4 revenue growing by 18% annually to $17.3 billion. However, the shares closed 8.4% lower on August 13th after it reported its earnings on August 12th. Cramer discussed the earnings and dismissed the market’s reaction:
“I know that Mythos, if you go and you read what Cisco’s quarter was about. They say you have to protect yourself from these things. I think by the way, just to recap Chuck Robbins and Cisco, I think his projections were lowballed, I think the stock should [inaudible] they have a cybersecurity element that’s pretty good. they also, you have to network between data centers. What an opportunity. I mean he comes in and he basically just says, listen, we’re going to do far less than you think. That’s Chuck’s way.”
As is the case with any firm associated with the AI buildout, Cisco Systems, Inc. (NASDAQ:CSCO)’s narrative also concerns the sustainability of its revenue growth. Apart from the revenue, the firm’s corporate orders grew by more than 30% to $13 billion. Additionally, Cisco Systems, Inc. (NASDAQ:CSCO) also reported performance obligations of $46.7 billion along with $32 billion in recurring revenue. These metrics have led firms such as Bank of America and Morningstar to comment that Cisco Systems, Inc. (NASDAQ:CSCO) is capitalizing well on hyperscaler demand. Yet, without a detailed breakdown of the recurring revenuen and performance obligations, it is tricky to determine the extent to which the firm is benefiting from high-margin enterprise AI fabric deployments, rather than low-margin lower-tier hardware upgrades.
Additionally, the key concern remains about the cost of catering to this demand. During its latest fiscal quarter, Cisco Systems, Inc. (NASDAQ:CSCO) reported gross margins of 66.3%, which marked a drop over year ago figure of 68.4%. Additionally, the firm’s AI revenue during fiscal 2026 was $4 billion, which was less than 10% of the overall revenue. The concerns about the margins were reflected in HSBC’s post-earnings coverage as it downgraded the stock to Hold. At this time of margin pressure, Cisco Systems, Inc. (NASDAQ:CSCO)’s margin friendly software business is also exhibiting slow growth as services growth was flat during fiscal Q4.
On the hedge fund front, while 77 out of 1,041 funds in Q4 2025 had held a stake in Cisco Systems, Inc. (NASDAQ:CSCO), in Q1, this figure jumped to 97 out of 1,021 funds in Insider Monkey’s database. Compared to peer ANET’s forward P/E of 45.45, CSCO’s forward P/E of 20.58 is more balanced.
While Insider Monkey acknowledges the risk and potential of CSCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than CSCO that has 100x upside potential, check out our report about the cheapest AI stock.
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Disclosure: None.
