Buy, Sell or Hold Cisco Systems Stock? Key Tips Ahead of Q3 Earnings

Core Viewpoint - Cisco Systems is expected to report strong third-quarter fiscal 2025 results, driven by improved demand in networking and security products, despite facing some macroeconomic challenges [1][3][5]. Financial Expectations - Cisco anticipates third-quarter revenues between $13.9 billion and $14.1 billion, with non-GAAP earnings expected between 90 and 92 cents per share [1]. - The Zacks Consensus Estimate for revenues is $14.05 billion, reflecting a year-over-year growth of 10.58%, while the earnings consensus is steady at 91 cents per share, indicating a growth of 3.41% year-over-year [2]. Key Growth Drivers - Improved demand for networking products, particularly in switching, enterprise routing, and industrial networking applications, is expected to benefit Cisco's results [3]. - The networking revenue estimate for the fiscal third quarter is $6.76 billion, indicating a 3.6% year-over-year growth [4]. - Cisco's security revenue is estimated at $2.195 billion, showing a significant year-over-year growth of 68.3%, driven by strong demand for solutions like XDR and Secure Access [4][5]. Market Performance - Cisco shares have gained 1% year-to-date, outperforming the Zacks Computer & Technology sector's decline of 8.5% and the Computer Networking industry's return of 0.8% [6]. - However, Cisco's stock is considered to have a stretched valuation, with a forward 12-month P/S ratio of 4.08X, higher than the industry average of 3.89X [9]. Strategic Initiatives - Cisco's investments in AI, cloud, and security are expected to drive growth, with AI infrastructure orders exceeding $700 million in the first half of fiscal 2025 [12]. - The company is leveraging AI across its portfolio, including the launch of the Renewals Agent, an AI-driven solution, and enhancing customer experience through Agentic capabilities [13]. - Cisco's security business is benefiting from strong demand for Cisco Secure Access and XDR, with both solutions gaining over 1,000 customers in the past year [14]. Partnerships and Collaborations - Cisco's partnerships with major companies like Meta Platforms, Microsoft, NVIDIA, and ServiceNow are enhancing its market position [15]. - Collaboration with NVIDIA is expanding Cisco's data center infrastructure portfolio, while the partnership with ServiceNow integrates AI-driven security solutions [16][17]. Conclusion - Cisco's near-term results are expected to benefit from a robust networking and security business, supported by a strong partner ecosystem, despite facing tariff-related and macroeconomic challenges [18].