Cisco and rival Arista Networks share a historical connection.
Arista (ANET) was co-founded in 2004 by Andreas Bechtolsheim and David Cheriton, who also co-founded Granite Systems in 1995 — a company focused on gigabit ethernet technology that Cisco acquired just a year later in 1996.
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The companies, however, have been rivals for years, with Cisco even filing lawsuits against Arista, alleging patent infringement. In 2018 Cisco (CSCO) and Arista settled the dispute, with Arista paying Cisco $400 million.
Cisco is a giant provider of networking equipment, offering hardware, software and solutions related to networking, cybersecurity, the internet of things, and other areas.
The company is now actively integrating artificial intelligence across its product and service portfolio. In February 2024 Cisco and Nvidia (NVDA) said they planned to provide AI infrastructure solutions for data centers.
Related: Analysts revisit Nvidia stock price targets with Q3 earnings in focus
Cisco stock is up 14% year-to-date, while the Nasdaq Composite has gained 27% and competitor Arista has surged 64% over the same stretch.
Cisco reports mixed quarter; stock drops
On Nov. 13 Cisco reported its fourth straight quarter of lower revenue. The stock fell 2% after the results.
For the fiscal first quarter ended Oct. 26 the company earned an adjusted 91 cents a share, beating the Wall Street analyst consensus estimate of 87 cents. Revenue reached $13.84 billion, above the $13.77 billion consensus and down 6% from $14.7 billion a year earlier.
Within segment performances, revenue from networking, Cisco's largest segment, fell 23% to $6.75 billion, missing the $6.8 billion estimate, CNBC reported. Security revenue doubled to $2.02 billion, surpassing the $1.93 billion forecast.
Related: Analyst doubles stock price target for under-the-radar AI stock
Chief Executive Chuck Robbins noted strong demand for AI infrastructure, with more than $300 million in AI-related orders during the quarter.
"We have earned more design wins and remain confident that we will exceed our target of $1 billion of AI orders this fiscal year from web-scale customers," Robbins said.
Cisco has partnered with Nvidia for AI hardware and plans to support additional GPUs as market needs evolve.
While AI initiatives are promising, near-term headwinds in networking and government spending remain a concern for investors.
Chief Financial Officer Scott Herren said U.S. government deals have been delayed due to the Fiscal Responsibility Act of 2023, which limits spending. But Herren anticipates budget clarity soon.
The company raised full-year guidance, projecting adjusted EPS of $3.60 to $3.66 and revenue of $55.3 billion to $56.3 billion, indicating growth of 3.3% at the midpoint.
Analysts raise Cisco stock price targets after earnings
A number of analysts have raised their stock price targets on Cisco after the fiscal Q1 report.
Bank of America raised its target to $72 from $60 with a buy rating, thefly.com reported.
The analyst highlighted better-than-expected earnings and revenue growth and expected faster growth in the second half, driven by robust cloud/AI and security orders.
UBS raised its Cisco price target to $62 from $55 while maintaining a neutral rating.
The analyst noted that Cisco's product orders rose 9%, excluding Splunk, compared with a 6% increase last quarter, signaling a turnaround in the business.
Cisco's acquisition of Splunk was completed in March 2024. Splunk specializes in software for searching, monitoring and analyzing machine-generated data.
Although AI revenue recognition depends on factors beyond Cisco's control, the company expects to start recognizing this revenue in the second half of 2025, the analyst said.
However, the analyst says the record gross margins this quarter and the fiscal 2025 forecast of 68%-69% should be viewed with some caution.
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Morgan Stanley raised its Cisco target to $62 from $58 and maintained an overweight rating. The firm said Q1 results slightly exceeded expectations, driven primarily by Splunk's strong performance.
The analyst highlighted U.S. federal as a segment to keep an eye on but expressed overall confidence in Cisco's performance, stating the investment firm remains optimistic about the overweight thesis.
Cisco closed at $57.92 on Nov. 14. At last check the stock was
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