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Cisco Unveils AI Factory With NVIDIA: Is CSCO Stock a Buy or Hold?
ZACKSยท2025-03-24 16:35

Core Insights - Cisco Systems is expanding its AI portfolio through collaboration with NVIDIA, aiming to increase AI-driven revenues, with orders exceeding $700 million by the end of the first half of fiscal 2025 and projected to surpass $1 billion in the same fiscal year [1][3] - The company is experiencing significant growth in AI-driven enterprise orders, with over 40% growth in the first half of fiscal 2025 and more than 50% in the second quarter alone [2][3] - Despite the positive outlook for AI growth, Cisco shares have declined 6.2% year-to-date due to macroeconomic challenges and competitive pressures in the networking sector [3][18] AI and Security Developments - Cisco's partnership with NVIDIA focuses on creating AI-ready data center networks, enhancing security and management of AI infrastructure [7][10] - The introduction of various AI-driven products, including the Webex AI Agent and Cisco AI Defense, aims to improve customer experience and address security challenges associated with AI adoption [9][15] - Security orders have more than doubled in the fiscal second quarter, with revenues reaching $2.11 billion, driven by advanced analytics and threat detection capabilities [12][15] Financial Performance and Guidance - For fiscal 2025, Cisco expects revenues between $56 billion and $56.5 billion, with non-GAAP earnings projected between $3.68 and $3.74 per share, indicating a year-over-year revenue growth of 4.88% [16][18] - Cisco has consistently beaten earnings estimates in the past four quarters, with an average surprise of 4.07% [17] - The stock is currently trading at a premium price/sales ratio of 4.13X, higher than its historical median and the industry average, suggesting a stretched valuation [18][19]