Cisco is aiming to regain investor confidence in its order book and future demand after a recent setback. Although hopes were high for the company to experience growth from providing network equipment for artificial intelligence (AI), Wall Street analysts believe this may take longer than anticipated.
In its fiscal fourth quarter report, Cisco (ticker: CSCO) revealed a significant increase in product orders, which should help ease concerns following disappointing guidance in the previous quarter. Evercore analyst Amit Daryanani expressed support for Cisco’s commitment to demonstrating operating leverage and maintaining a consistent buyback, factors that will undoubtedly resonate with investors. As a result, Daryanani raised his target price on Cisco shares from $60 to $63.
Cisco’s stock showed positive movement in premarket trading on Thursday, with a 2.6% increase to $54.35. Prior to this, the stock had already risen by 11% this year until the close of Wednesday.
Deutsche Bank analysts, meanwhile, assert that underlying market demand remains constructive and emphasizes the company’s resilience across various sectors. With a Hold rating and a target price of $54, Deutsche Bank sees potential in Cisco’s performance.
However, the question remains whether Cisco can benefit from the growth of AI. The company has introduced multiple versions of its Silicon One networking chips, claiming they will be the most powerful solution for AI workloads. Thus far, Cisco has reported $500 million in AI-related orders. According to KeyBanc’s Thomas Blakey, there appears to be confidence in Ethernet-based AI opportunities (Silicon One), but the surge in demand may not occur until fiscal year 2025, similar to industry peers.
Blakey maintains a Sector Weight rating on Cisco’s stock and highlights that it is currently trading around 14 times its forward earnings. To justify a higher valuation, consistent signs of market share gains and a clearer picture of the order ramp-up in the current fiscal year would be required.
In conclusion, while Cisco is making strides in restoring confidence and demonstrating its potential for future demand, the impact of AI on its growth prospects may be delayed. Analysts continue to closely monitor Cisco’s progress and remain cautious about its valuation.