1 Cheap Tech Stock to Grab Now for AI Upside

Legacy tech giant Cisco Systems Inc. (CSCO) is a leading manufacturer and vendor of networking equipment. They are involved in the designing, producing, and marketing of switches, modules, controllers, access points, wireless products, interfaces, and routers. Incorporated in 1984, the company is headquartered in San Jose, California. With a market cap of $226.7 billion, Cisco is a mega-cap leader in global connectivity solutions.

CSCO has lagged the broader market over the past year, with a 52-week gain of just 7.8%. On a YTD basis, the stock is up 11.4%, compared to the S&P 500 Index's ($SPX) gain of 21.5%.

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However, the shares are fresh off a 52-week high of $57.06, set on Oct. 21. CSCO has been gaining momentum in recent months, surging 26% from August's YTD low.

Cisco's Q4 Earnings Top Estimates

Cisco reported its fiscal fourth-quarter results back on Aug. 14, where its profit of $2.16 billion translated to $0.87 per share - beating analysts' estimated $0.85. The tech giant posted Q4 revenue of $13.64 billion - down 10.3% YoY, but ahead of Wall Street’s $13.52 billion expectations.

Product revenue declined by 15.4% to $9.86 billion, while networking revenue tumbled 28% YoY to $6.80 billion. Securities revenue was $1.79 billion, while Splunk contributed $960 million during the quarter. Overall, the network equipment company reported a gross margin of 67.9%, up 200 basis points, with a non-GAAP operating margin of 32.5%. 

Cisco ended the quarter with a cash reserve of $17.9 billion, down 4.7% YoY.

Management guided for first-quarter 2025 revenue between $13.65 billion and $13.85 billion, with EPS of $0.86 to $0.88. Non-GAAP gross margin is expected between 67% to 68%, and non-GAAP operating margin between 32% and 33%. 

For the full year 2025, the company anticipates revenue in the range of $55 billion to $56.2 billion with a profit of $3.52 to $3.58 per share.

An Upgrade for Cisco

Cisco stock was in focus last week when it gained a new “Buy” rating from Bank of America analyst Atif Malik, who cited the company's increasing AI potential as a key factor in the upgrade.

“While AI is currently a small piece of the biz (~2% of revs), we see the potential for a stronger contribution. With more AI coming, we are incrementally more constructive on the group and expect continued investor rotation out of semis/hardware into networking equipment to benefit group valuation,” wrote Malik, who raised his price target on CSCO to $62.

The analyst also increased his 2025 and 2026 earnings estimates by 2% and 5%, respectively, and said the upcoming November earnings report could be a “potential catalyst” for Cisco stock.

The upgrade comes after Meta Platforms (META) added Cisco to its AI hardware portfolio, which Malik described as “a positive validation of CSCO’s technology.”

Is Cisco Stock a Good Buy Right Now?

CSCO stock is covered by 23 analysts in total, with a consensus rating of “moderate buy.” The mean price target is $56.60, which is nearly flat with the current share price.

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However, the stock is valued at a forward price/earnings (P/E) ratio of 15.86, which is a healthy discount to the tech sector median of about 24x. Likewise, CSCO trades at 14.17x forward cash flow - a relative bargain compared to the tech sector median of 22.18x. This suggests Cisco is still reasonably cheap at current levels.

Plus, for income investors, Cisco pays a dividend of $0.40 per share on a quarterly basis, which results in a generous yield of 2.83% at current levels. Backed by over a decade of consistent dividend growth, Cisco looks like an appealing value stock to scoop up right now, with the additional bonus of AI upside.

On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.