Cisco Stock Price Forecast - CSCO's AI Orders Push Stock Toward $92 Target After $79 Breakout

Cisco Stock: CSCO Strengthening Its Grip on AI Infrastructure as Revenue and EPS Growth Accelerate

AI Demand Becomes the Core Catalyst for NASDAQ:CSCO

Cisco Systems (NASDAQ:CSCO) is redefining its role in the AI infrastructure economy as the company’s Q1 FY2026 results signal a structural resurgence in growth. With the stock trading near $79.32, up 1.73%, Cisco has proven its ability to pivot from a legacy networking provider to a critical enabler of the AI data-center era. The company reported $14.88 billion in revenue, up 8% year over year, and $1.00 EPS, a 10% increase from the prior year. Most importantly, AI infrastructure orders soared to $1.3 billion from hyperscalers and another $200 million from enterprise and sovereign clients, setting a record for quarterly demand. Cisco now targets $3 billion in AI-related revenue for FY2026, underlining how its Silicon One chips and coherent pluggable optics are reshaping data-center connectivity. These systems enable hyperscalers to transmit multi-terabit data streams at lower energy cost, cementing Cisco’s position as the essential hardware layer beneath the AI cloud ecosystem.

Networking Revenue Surge Reinforces Structural Momentum

The backbone of Cisco’s turnaround is its core networking business, which delivered $7.77 billion in revenue, up 15% year over year and accounting for 52% of total sales. Security revenue contributed $1.98 billion, while Services generated $3.8 billion, rising 2% YoY. Product orders advanced 13%, almost double the 7% increase from the previous quarter, confirming that the post-Q4 weakness has reversed. Remaining Performance Obligations (RPO) increased 7%, driven by 24% growth in Product RPO to $19.9 billion, offsetting modest deceleration in Services. Annualized Recurring Revenue (ARR) rose 22% to $29.9 billion, underscoring Cisco’s successful evolution toward a subscription-based business model. The blend of high-margin recurring income with large-scale hardware deployment gives Cisco a stable foundation for consistent profitability.

Improving Margins and Operational Discipline Support Profitability

Cisco maintained a 68.1% gross margin and expanded operating margin by 30 basis points year over year despite near-term product cost pressures. Operating expenses fell 150 basis points as a share of revenue, signaling improved corporate efficiency. Net income reached $4.01 billion, up 9% YoY, as EPS outpaced revenue growth — a sign of refined capital allocation. The balance between scale expansion in AI networking and cost optimization marks a disciplined transition phase, where volume offsets short-term margin compression.

Cash Flow and Capital Returns Remain Aggressive

Cisco’s financial discipline remains visible in its cash metrics. Operating cash flow totaled $3.21 billion, with free cash flow of $2.89 billion. Although FCF slipped year over year, the company returned $3.62 billion to shareholders — equivalent to 125% of free cash flow. This included $2 billion in stock repurchases and $1.62 billion in dividends. Cisco’s dividend yield of 2.09% and annual payout of $1.64 per share reflect 14 consecutive years of dividend growth. Over the past decade, Cisco has distributed $82.77 billion in buybacks and $59.73 billion in dividends, funded by an average EBITDA of $15.7 billion and cash reserves of $15.74 billion. The company’s balance sheet strength, combined with consistent capital return, provides investors with stability rare in the AI hardware space.

FY2026 Outlook: Revenue Acceleration and EPS Expansion

Cisco raised its FY2026 guidance, forecasting revenue between $59.4 billion and $60.6 billion, marking 6.9% year-over-year growth at the midpoint — faster than FY2025’s 5%. Non-GAAP EPS is projected at $4.05–$4.11, implying 7.9% annual growth. These projections point to accelerating earnings leverage as operational efficiency compounds. Having never exceeded $57 billion in annual revenue, the updated forecast sets Cisco up for a record fiscal year. At current levels, the stock trades at 18.9× forward earnings, well below the IT sector median of 24×, despite comparable growth and stronger balance-sheet flexibility.

AI-Driven CapEx Cycle: The Macro Tailwind Behind CSCO

Cisco’s growth trajectory is deeply tied to the AI CapEx wave. The combined annual infrastructure spending by Alphabet, Amazon, Microsoft, and Meta reached $217 billion in 2024, up 55% year over year, and is projected to hit $354 billion by the end of 2026. Each dollar of this hyperscaler spending increases demand for Cisco’s routers, switches, optics, and security layers. Even a 10% share of incremental CapEx would translate into billions in new revenue opportunities annually. Cisco’s scale, distribution, and supplier relationships enable it to capture this demand faster than smaller vendors, reinforcing its dominance in the AI-era network stack.

Valuation and Peer Comparison: The Undervalued Giant

Despite a forward P/E of 18.9×, Cisco trades at a steep discount to Fortinet (FTNT) at 26.7×, even though Cisco’s expected 16.2% EPS growth surpasses Fortinet’s 10.9% projection. This valuation mismatch underscores investor hesitation rooted in Cisco’s early-2000s stagnation — an outdated narrative disconnected from current fundamentals. Nearly half of Cisco’s revenue is now recurring, and AI-related orders are compounding rapidly. Given its strong balance sheet, consistent dividend, and AI exposure, the stock’s undervaluation presents a clear mispricing relative to peers.