Let’s be real Cisco Systems (NASDAQ: CSCO) hasn’t exactly been a market darling lately. The networking giant once known for fueling the internet boom in the 2000s has, in recent years, been more of a “safe and sleepy” play than a rocket ship.
But here’s where it gets interesting, something might finally be shifting under the hood.
What’s Cisco’s Problem?
Product orders plunged 12% in Q3, and that’s a bigger deal than it might sound because it’s not a seasonal hiccup but the kind of sustained demand drop that keeps management up at night. In fact, this was the fourth straight quarter of declining orders.
But wait, don’t write this stock off just yet.
There’s an AI Angle (Because Of Course There Is)
Here’s the twist: Cisco isn’t standing still. In February 2024, it closed its $28 billion acquisition of Splunk, the data analytics company best known for helping enterprises monitor cybersecurity threats and sift through IT logs.
This wasn’t some impulsive splurge. It’s the largest acquisition in Cisco’s history and it’s a direct bet on AI-driven cybersecurity. You want to protect all that generative AI infrastructure going into data centers? You need visibility, analytics, and automation. That’s what Splunk does.
Cisco expects the Splunk deal to add to cash flow and earnings within the first year. That’s rare air for big acquisitions.
And here’s a juicy stat: Splunk had been growing revenue at a ~15% clip before the deal. If Cisco can preserve even half that growth, it injects fresh blood into a company that’s been limping along at low-single-digit top-line expansion.
The Market’s Reaction? Meh. For Now.
Cisco’s stock barely budged on the earnings release. It’s been bouncing around the $45–$50 range like a tired ping pong ball all year. As of late May 2024, the stock is up just ~2% YTD, badly trailing the broader tech sector.
But here’s something of note, Cisco’s now trading at just 13x forward earnings.
For a company that still generates nearly $50 billion a year in revenue and throws off massive cash flow, we’re talking ~$4 billion a quarter, that’s a dirt-cheap valuation by big-cap tech standards. Microsoft trades at 33x. Even IBM, yes, IBM, goes for 17x.
Is Cisco sexy? Nope. But is it cheap? You bet.
Okay, But Where’s the Growth?
Fair question.
Cisco’s guidance for Q4 2024 calls for revenue between $13.4 billion and $13.6 billion — basically flat from the year before. So don’t expect fireworks just yet.
But here’s a line buried in the earnings call that caught my eye:
“We expect product orders to return to year-over-year growth in Q1 of fiscal 2025.”
Translation? The demand slump might finally be turning the corner.
And with Splunk now onboard, plus Cisco’s own push into AI-optimized data center networking, the pieces could be falling into place for a slow-motion rebound.
The Dividend Quietly Keeps Growing
While growth investors have been busy chasing Nvidia and crowding into AI plays, dividend hunters have quietly been collecting checks from Cisco.
The company pays a 3.4% dividend yield — one of the highest among big-name tech stocks — and it just raised the payout again in early 2024. This isn’t a flash-in-the-pan payout either. Cisco has increased its dividend every year for more than a decade.
And here’s something under-appreciated: the payout ratio is still under 50%. That gives Cisco plenty of room to keep raising the dividend, even if growth stays lukewarm.
It’s basically tech’s version of a dividend aristocrat in training.
Wall Street’s Take
Right now, the analyst crowd is… cautiously optimistic. The consensus 12-month price target sits at around $54 — about 15% upside from current levels.
That doesn’t include the dividend, which pushes the total return closer to 18%.
And if Cisco can surprise to the upside on orders or integrate Splunk more smoothly than expected? You could easily see that target move higher.
Interestingly, a few big funds seem to be warming back up to the name. In Q1 2024, Vanguard and BlackRock both added to their stakes. Not by a lot — but still. When the elephants start shifting their weight, it’s worth noticing.
Risks? Absolutely.
Let’s not pretend there’s no downside here.
If product orders don’t bounce back in Q1 2025 like management claims, investors may start to lose patience. Splunk integration could also go sideways — big acquisitions don’t always pay off, no matter how strategic they look on paper.
And then there’s the brutal competition. Cisco’s core markets — networking, security, cloud infrastructure — are packed with aggressive players like Arista Networks, Palo Alto Networks, Juniper, and Huawei.
If Cisco can’t differentiate in the age of AI, its legacy status becomes a liability, not an asset.
How High Can Cisco Stock Go?
Let’s crunch this simply.
Right now, Cisco earns about $3.50 per share and trades at a 13x multiple. If it can grow EPS by 9% annually — in line with its long-term average and the market decides it deserves a 14x multiple instead of 13x?
That gets you a stock price around $59 in 12–18 months. Toss in the dividend, and you’re looking at a potential 25% total return.
Not exactly Nvidia-level upside. But for a stock that feels like it’s been in hibernation for a decade? That’s not nothing.
And here’s the thing: if sentiment shifts and Cisco finally gets credit for the AI and cybersecurity moves it’s making, the multiple could expand even more. Especially if orders finally rebound and the Splunk integration goes smoother than people expect.
Most Exciting Stock, It’s Not
Cisco won’t win any “most exciting stock” awards. It’s not disrupting the world. It’s not riding the AI hype train with wild valuations. But that might be exactly why it’s worth a look right now.
You’ve got a cash-rich business trading at a low valuation, paying a growing dividend, and making calculated bets on AI-powered security just as enterprise IT spending begins to thaw.
Is that enough to spark a full-on rebound?
We’ll see. But if Cisco executes even modestly well, this stock has room to surprise — and you get paid to wait while it figures it out.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
