Cisco Systems (NASDAQ: CSCO) experienced a notable decline on Friday, with shares falling 4.5% despite the company’s robust performance in artificial intelligence (AI) demand and a positive revision from Wall Street analysts. The stock closed at $113.77, a drop of approximately $5.41 per share, resulting in a loss of about $21 billion in market capitalization. This decline has prompted investors to assess the balance between Cisco’s burgeoning AI business and concerns regarding its valuation amid broader market volatility.
The trading volume for Cisco stocks was significantly elevated, with nearly 50.1 million shares changing hands, well above the average daily volume of approximately 28 million shares. This heightened activity reflects the market’s mixed sentiments surrounding the company’s immediate outlook.
Wall Street Remains Optimistic
Despite the drop, KeyBanc analyst Jackson Ader has reiterated an “Overweight” rating on Cisco, increasing the price target from $125 to $130. This new target is just below Cisco’s 52-week high of $130.37, indicating a potential upside of approximately 14% from current levels. Ader’s bullish stance is rooted in growing confidence that Cisco can effectively leverage rising enterprise and hyperscaler spending linked to AI infrastructure.
However, investor apprehension persists regarding Cisco’s current valuation, which may already reflect much of the anticipated growth from AI. As of Friday’s closing price, Cisco shares were trading at around 26.6 times the midpoint of its fiscal 2026 non-GAAP earnings guidance, estimated between $4.27 and $4.29 per share. Should the stock reach KeyBanc’s $130 target, the earnings multiple would exceed 30 times forward earnings, raising questions about sustainability.
AI Orders Continue Accelerating
In a recent update, Cisco’s management disclosed that AI infrastructure orders from hyperscale customers have surged to $5.3 billion this year. Encouraged by this demand, the company has raised its fiscal 2026 AI orders forecast to approximately $9 billion, a significant increase from the previous estimate of $5 billion. Additionally, Cisco anticipates that AI infrastructure revenue from major cloud providers will approach $4 billion during fiscal 2026. While these figures are promising, they still represent a modest portion of Cisco’s projected total annual revenue guidance of between $62.8 billion and $63 billion.
This situation explains the cautious stance of some investors. Although AI growth is accelerating, Cisco’s traditional networking operations continue to account for the majority of overall sales and play a critical role in sustaining earnings growth.
Core Networking Business Stays Strong
Beyond its advancements in AI, Cisco has maintained solid performance in its legacy networking divisions. In the fiscal third quarter, the company reported a 35% year-over-year increase in total product orders. Excluding hyperscale customers, orders still saw a significant climb of 19%.
Networking product orders surged more than 50%, while campus networking orders grew over 25%. Demand for data-center switching also remained robust, increasing by more than 40%. CEO Chuck Robbins noted a strong customer appetite for AI-related networking and security solutions, which contributed to Cisco achieving record quarterly revenue.
Third-quarter revenue increased by 12% year-over-year to $15.8 billion, and non-GAAP earnings per share climbed 10% to $1.06. CFO Mark Patterson remarked that non-GAAP operating income also reached a record level during the quarter, reflecting the strength of Cisco’s overall operations.
