Core Viewpoint - Cisco Systems has reported strong earnings and a confident outlook for fiscal year 2026, driven by three distinct growth engines that are reshaping the company's future [1][2]. Group 1: Financial Performance and Projections - Management anticipates revenue between $59 billion and $60 billion for fiscal year 2026, with non-GAAP earnings per share projected to be between $4.00 and $4.06 [2]. - Cisco's stock price forecast is $74.53, indicating an 11.20% upside based on 24 analyst ratings, with a current price of $67.02 [7]. Group 2: AI Infrastructure Growth - Cisco secured over $2 billion in AI-related orders in fiscal year 2025, doubling its original target of $1 billion, highlighting its success in the AI infrastructure market [3]. - The company's product orders in the Service Provider and Cloud customer segment surged 49% year-over-year in the fourth quarter, reflecting strong demand [4]. Group 3: Business Model Transformation - Cisco's shift towards high-margin software and services is supporting its AI-driven growth, with total subscription revenue now accounting for 54% of its total revenue [8]. - The integration of the acquisition of Splunk has led to a 14% year-over-year increase in new logos, expanding Cisco's market reach in cybersecurity and observability [9]. Group 4: Core Business and Upgrade Cycle - A major multi-year upgrade cycle is underway in enterprise and campus networking, driven by the launch of Cisco's Catalyst 9000 "smart switches" [11]. - The need for network modernization is being fueled by the deployment of AI applications, requiring more power, speed, and security [12]. Group 5: Investment Profile - Cisco offers a reliable 2.45% dividend yield with a payout ratio of 43.2% of cash flow, indicating strong sustainability and room for future increases [21]. - The company's P/E ratio is approximately 25.56, providing a reasonable entry point compared to many high-valuation AI stocks [21].

Investment Rating - The report assigns an "Outperform" rating for Cisco, indicating an expected total return over the next 12-18 months that exceeds the relevant market benchmark [21]. Core Insights - Cisco's Q4 FY25 results showed revenue of $14.7 billion, a year-over-year increase of 8%, surpassing expectations of $14.62 billion. Non-GAAP net income reached $4.0 billion, up 12% year-over-year, with non-GAAP EPS at $0.99, a 14% increase [1][8]. - The growth was primarily driven by strong demand for AI infrastructure and network upgrades, alongside several AI-oriented product launches. Cisco's competitive position in networking and AI has been further strengthened through strategic partnerships and continuous innovation [1][8]. - For the full fiscal year 2025, Cisco reported total revenue of $56.7 billion, reflecting a 5% year-over-year growth [1][8]. Summary by Sections AI Infrastructure - AI infrastructure has emerged as a significant growth driver, with web-scale customer orders exceeding $800 million in Q4, leading to cumulative orders of over $2 billion for FY25, far surpassing the initial target of $1 billion. Approximately $1 billion of revenue related to these AI orders was recognized in FY25, indicating effective order-to-revenue conversion [2][9]. - Orders from service providers and cloud customers surged by 49% year-over-year, with web-scale customers achieving triple-digit order growth for four consecutive quarters, highlighting persistent demand [2][9]. Networking Segment - The networking segment experienced a 12% year-over-year revenue growth in Q4, with double-digit order growth recorded for four consecutive quarters. Newly launched products, such as the Catalyst 9K smart switches, are positioned to create AI-ready networks [3][10]. - The adoption of Wi-Fi 7 products has accelerated significantly, showing triple-digit year-over-year growth. Additionally, ruggedized Catalyst devices for industrial IoT have maintained double-digit order growth for five consecutive quarters, benefiting from local investments in manufacturing and critical infrastructure [3][10]. Security and Software - The security segment saw a 9% year-over-year revenue increase in Q4, driven by new and upgraded security products. The integration with Splunk has begun to yield synergies, with new customer acquisitions growing by approximately 14% year-over-year [4][11]. - The shift towards software and subscription services continues, with rising RPO and ARR, enhancing revenue visibility for FY26. Services revenue remained stable, with expectations for gradual recovery in FY26 [4][11]. FY26 Outlook - Management projects mid-single-digit revenue growth and a solid non-GAAP EPS range for FY26, supported by three core drivers: the AI strategy encompassing web-scale training back-end, enterprise inference/cloud, and network connectivity [5][12]. - The campus network refresh cycle and integrated security solutions are expected to support a recovery in enterprise IT spending. The ongoing transition to subscription and software models, along with Splunk synergies, will further enhance revenue predictability and profit structure [5][12][13].

Core Insights - Cisco Systems is enhancing its position in network security and intelligent infrastructure with a strong product portfolio, reporting a 15% year-over-year increase in product revenues to $10.37 billion in Q3 fiscal 2025, with Security products leading the growth at 54% [2][10] - The company's product Annual Recurring Revenue (ARR) increased by 8%, indicating a successful transition to software-based offerings and a more predictable revenue model [3][10] - Cisco's AI Canvas innovation is designed to unify AI-powered IT operations, improving operational efficiency and problem-solving across various domains [4] Financial Performance - Cisco's product revenues rose 15% to $10.37 billion, driven by significant growth in Security and Observability segments [10] - The product ARR climbed 8%, reflecting the shift towards software-based offerings and recurring revenue streams [10] - The Zacks Consensus Estimate for Cisco's fiscal 2025 revenues is $56.59 billion, suggesting a 5.18% year-over-year growth, with earnings estimated at $3.79 per share, indicating a 1.61% increase from fiscal 2024 [12] Strategic Developments - Cisco has secured over $1 billion in AI infrastructure orders in fiscal 2025, ahead of schedule, bolstered by its partnership with NVIDIA and the launch of AI Canvas [5][10] - The collaboration with NVIDIA is aimed at strengthening Cisco's presence in the AI infrastructure market [5] Competitive Landscape - Fortinet and Juniper are emerging as significant competitors to Cisco in the AI and cybersecurity domains, with Fortinet focusing on next-gen firewalls and AI-driven SecOps tools, while Juniper excels in AI-powered networking and automation [6][7][8] Valuation Metrics - Cisco's stock is currently trading at a forward 12-month price-to-sales ratio of 4.31, which is higher than the industry's ratio of 4.11, indicating that the stock may be overvalued [11]

During this presentation references to financial measures of Cisco will include references to non-GAAP financial measures. Cisco provides a reconciliation between GAAP and non-GAAP financial information on the Cisco Investor Relations website https://investor.cisco.com/financial-information/financial- results/default.aspx © 2025 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 2 Q3 Fiscal Year 2025 Conference Call May 14, 2025 Forward-Looking Statements This presentation contains project ...