Where Will Cisco Systems Stock Be in 10 Years?

Cisco Systems, Inc. (NASDAQ:CSCO) has enjoyed its position as a tech stalwart for a long, long time now. Yet, it has been somewhat lost in the AI buzz, and some of its peers have overshadowed it. Over the past year alone, the stock has gained by about 18%. By comparison, the broader Technology Select Sector SPDR Fund (NYSEARCA:XLK) outperformed Cisco, gaining over 25% over the same period.

But, Cisco is a tenured titan of the technology industry so can investors count on it to deliver significant gains over the next decade and beyond?

What Is Happening with Cisco Systems Now?

Cisco Systems was the “apple of the eye” of the internet revolution. After it was founded by a group of computer scientists in 1984 (the company celebrated its 20-year anniversary last year), Cisco became popular for its Internet Protocol (IP)-based networking technologies. The company started producing products like routers, switches, and other networking and wireless technology.

After ballooning during the 2000 tech bubble, Cisco faced a slower growth trajectory compared to some big tech peers and nowadays the market’s focus has shifted to fields like cybersecurity, cloud computing, and the archetypal Wall Street buzzword artificial intelligence.

Still there are tailwinds because the overall computer hardware market is expected to report a compound annual growth rate of 6.5% through 2028. This market is supported by investments in smart cities, which, in turn, are propped by investments in IoTs. Together, they act as a considerable tailwind for companies in the IT field.

Yet, this growth somewhat pales in comparison to the one the software market is expected to post. Over the same period, the software market is projected to expand at a CAGR of 7.8%. This tech segment is strongly supported by companies’ transition to move operations to the cloud. In essence, digital transformation depends a lot on software innovations across AI, cloud and cybersecurity applications.

Is Cisco an AI Play Now?

Cisco Systems is trying to get in on the action and integrate AI into its portfolio across networking, security, and other segments. 

The company has taken some steps to make its AI journey more financially manageable by taking the decision to cut 7% of its workforce this year. Cisco’s CFO, Scott Heren, made it known that this decision aligned with its restructuring efforts rather than for outright cost-saving.

Cisco’s rapid shift towards AI, cloud, and cybersecurity is creating some restructuring costs as well. The company is expected to recognize about $700 million to $800 million of these charges in the first quarter of fiscal 2025 and the remaining amount during the rest of fiscal 2025. This is part of a large restructuring effort that a lot of tech companies are undertaking to pivot more towards AI.

Cisco took a major step when it closed the acquisition of software firm Splunk for a whopping $28 billion. This was specifically done to expand its reach in the AI world. Management stated that it is getting four benefits from this purchase: infrastructure to power AI, data to develop it, a security platform, and an observability platform to monitor and manage data.

Has Cisco Systems’ Financials Kept Up Pace?

The company’s Q1 results for fiscal 2025 were the most recent and not much changed from the prior quarter because revenue fell compared to the prior year’s period by 6% to $13.84 billion (excluding Splunk, there was a 14% drop). This was mainly due to a 9% drop in its product revenue to $10.11 billion, which still accounts for the majority of its top line.

This decline was noted in several of its geographical regions. The biggest drop was seen in the Americas segment by 9% year-over-year. By product categories, networking had the largest drop of 23% year-over-year.

Despite declines, Cisco’s margins remain strong. GAAP-based gross margin fell by 5% from the year-ago value to $9.12 billion, making up 66% of the total top line.

Net income came in at $2.71 billion for the quarter. On a non-GAAP basis, the company recorded the highest non-GAAP gross margin seen in more than 20 years. More or less, these results were a little bit better than what the analysts were expecting.

Where Will Cisco Systems Stock Be in 10 Years?

The consensus estimate for Cisco Systems stock over the next 10 years is $65.10 per share based on a 10-year discounted cash flow forecast analysis. For comparison’s sake a 5-year DCF pegs fair value closer to $59.15 per share.

Of the 24 analysts covering Cisco, the range of estimates spans from $50 per share to $78 while the consensus sits at $62.79 per share.

With a 14 year history of hiking dividends there’s lots to like for dividend investors too who can enjoy at 2.72% yield in the interim. And there are no signs of the $1.60 payout being in jeopardy given the 68% payout ratio.

Cisco considers itself to be uniquely positioned to capitalize on the AI trend. Yet, there are a few factors at stake here.

First, this was the company’s fourth straight quarter of reporting top line drops. A slowdown when it is trying to restructure its business does not look conducive. On the other hand, the Splunk acquisition looks to be highly accretive to its business.

The mix of these factors makes us think that maybe investors should consider waiting on Cisco before rushing to invest in this old tech giant.

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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.