Cisco Down 11% in a Month: Should You Buy the Stock on the Dip?

Core Viewpoint - Cisco Systems (CSCO) shares have declined 10.8% in the past month, slightly outperforming the Zacks Computer Networking industry's decline of 11% and the Zacks Computer & Technology sector's decline of 13.9% [1] Group 1: Market Challenges - Cisco's share price has been affected by a challenging macroeconomic environment and the rising threat of recession due to tariffs on China, Mexico, and Canada, increasing the possibility of a trade war [1] - The company is facing stiff competition in the networking business [1] Group 2: AI and Security Growth - Cisco is aggressively pushing into AI, expanding its portfolio with AI factory architecture developed in collaboration with NVIDIA, which is expected to drive AI-driven revenues [2] - At the end of the first half of fiscal 2025, Cisco had AI infrastructure orders worth over $700 million and is on track to surpass $1 billion in AI infrastructure orders for fiscal 2025 [2] - Orders for AI-powered robotics and industrial security have grown more than 40% in the first half of fiscal 2025, with over 50% growth in the second quarter alone [3] Group 3: Strategic Partnerships - Cisco's expanded partnership with NVIDIA aims to offer solutions for building AI-ready data center networks, with security being a core component [7] - The launch of 800-gig Nexus switches based on Cisco's 51.2 terabit Silicon One chip is expected to drive orders from AI-based cloud customers [7] Group 4: Security Business Performance - Cisco's security business is benefiting from strong demand for Cisco Secure Access and XDR, gaining over 1,000 customers in the past 12 months, with each product having roughly one million enterprise users [10] - The company has integrated Talos into Splunk's Enterprise Security 8.0 and launched several new solutions, including Cisco AI Defense, which addresses security challenges associated with AI adoption [11][12] Group 5: Financial Guidance - For fiscal 2025, Cisco expects revenues to be between $56 billion and $56.5 billion, with non-GAAP earnings projected between $3.68 and $3.74 per share [13] - The Zacks Consensus Estimate for Cisco's fiscal 2025 revenues is $56.42 billion, indicating a year-over-year growth of 4.86% [13] Group 6: Valuation and Stock Performance - Cisco shares are trading at a premium with a forward 12-month price/sales ratio of 3.72X, higher than the industry average of 3.54X and competitors like NETGEAR and Extreme Networks [14] - The stock is currently trading below the 50-day and 200-day moving averages, indicating a bearish trend [17] Group 7: Investment Outlook - Cisco's expanding and innovative portfolio positions the company for sustained growth in the evolving tech landscape, particularly with its AI initiatives and security footprint [19] - The company carries a Zacks Rank 2 (Buy), suggesting it may be a good time for investors to accumulate the stock [19]