Cisco Systems stock was supposed to be an artificial intelligence winner by now. But even though the stock is getting cheaper, Wall Street isn’t convinced it’s a good time to buy just yet.
The networking giant issued a disappointing outlook for the next two quarters and also announced plans to cut more than 4,000 jobs, about 5% of its workforce. Still could benefit from the AI boom – CEO Charles Robbins said the company’s AI orders tripled from last quarter to about $3 billion. This does not include business from our joint venture with Nvidia.
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However, the benefits may not be felt until 2025. The AI frenzy does not allow for such patience.
Shares fell more than 5% in early trading Thursday as the stock’s discount to peer Arista Networks looked set to get even bigger. However, analysts remain broadly neutral on the stock, with 71% giving it a hold rating as they need to see further evidence of future growth.
“While stocks are getting cheaper and cheaper, it’s true that Arista is growing while Cisco is not,” Ben Reitzes, an analyst at Melius Research, said in a note late Wednesday. “Cisco could still benefit from the ‘AI halo effect’ well into 2025, but it will remain in the show-me story for at least a few more quarters.”
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He added that although Arista is more expensive, the company is “taking a cleaner approach to AI, with an expected product cycle from late this year through 2025.” Arista has a forward P/E of 35 times, while Cisco has a forward P/E of 12.8 times, according to FactSet data.
KeyBanc analyst Thomas Blakey also weighed in on Cisco’s valuation, but said it’s justified at this point. Blakey said Cisco is currently trading at a slight discount to its three-year average price-earnings ratio, which “we believe is justified at this point given its relative obscurity.” It pointed out.
He lowered his 2025 earnings forecast, but said it “appears to be conservative” compared to its discounted valuation, especially considering potential catalysts such as AI and the Splunk acquisition.
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The company’s forward P/E ratio was 12.8 times as of Wednesday’s close, below the five-year average of 14.1 times, according to FactSet data.
Cisco expects April quarter revenue to be between $12.1 billion and $12.3 billion, down about 16% year-over-year, in the middle of that range and well above the Wall Street consensus of $13.1 billion. has fallen below. The company expects adjusted earnings for the quarter to be 84 cents to 86 cents a share, missing the consensus of 92 cents.
Email Callum Keown at callum.keown@barrons.com.
