These results underscore Cisco’s continued transition from legacy networking hardware to a more diversified, higher-margin software and services portfolio. A strategic pivot toward AI-powered security solutions seems to be paying off, although the market has yet to realize it. With an expanding product mix, upwardly revised guidance, and multiple analyst upgrades, I maintain a long-term bullish outlook on Cisco.
Splunk Powers Security Transformation
Cisco’s Security segment has emerged as a key growth driver following its strategic shift toward AI-powered cybersecurity solutions. Revenue in the segment surged 54% year-over-year to $2 billion last quarter.
Historically challenged by competition from pure-play cybersecurity firms like CrowdStrike (CRWD), Cisco has significantly strengthened its position through its $28 billion acquisition of Splunk. This acquisition has accelerated growth and enabled the launch of new products such as Hypershield and AI Defense—AI-driven solutions designed to secure data centers and cloud environments. Notably, both products have already been adopted by Fortune 100 companies.
Splunk has also revitalized Cisco’s Observability segment, which saw a 24% revenue increase last quarter. Before the acquisition, Cisco’s organic observability business grew by 3–4% annually. Integrating Splunk’s capabilities has created a more compelling offering for enterprises deploying AI workloads, delivering enhanced visibility and intelligence.
Together, the Security and Observability segments are now central to Cisco’s broader AI transformation strategy. For organizations seeking comprehensive visibility, protection, and data insight, Cisco is positioning itself as a full-spectrum solution provider. Reflecting this momentum, the company expects to generate ~$56.6 billion next quarter.
Execution Risks and Competitive Challenges
That said, Cisco’s $28 billion acquisition of Splunk was a significant investment, and while initial results are encouraging, the real test lies ahead as integration efforts deepen. Ideally, long-term growth is driven by organic innovation rather than large-scale acquisitions. Cisco’s track record in this area has been mixed—prior acquisitions such as AppDynamics and WebEx have delivered uneven outcomes over time.
Competitive pressure also remains a key concern. In the security space, Cisco faces stiff competition from specialized vendors like Palo Alto Networks (PANW), CrowdStrike (CRWD), and Zscaler (ZS). Meanwhile, in the networking segment—still responsible for roughly half of Cisco’s total revenues—rivals such as Hewlett-Packard Enterprise (HPE) and Nokia continue to advance.
Notably, HPE’s proposed acquisition of Juniper Networks, which would significantly bolster its networking capabilities, is under scrutiny from the U.S. Department of Justice over potential anti-competitive concerns. While a delay or failure of the deal could work in Cisco’s favor, the outcome could influence competitive dynamics in the sector.
Cisco also relies heavily on hardware sales, exposing it to supply chain volatility and potential tariff-related margin pressures. Although growth in its Security and Observability segments is promising, these businesses are still relatively small in scale. Sustained momentum will be needed for Cisco to prove that its shift toward software and AI-driven solutions can offset the slowdown in its core networking operations.
Is Cisco Systems a Buy, Sell, or Hold?
On Wall Street, CSCO earns a Moderate Buy consensus rating based on nine Buy, seven Hold, and zero Sell ratings in the past three months. CSCO’s average stock price target of $70.77 implies ~11% upside potential over the next 12 months.
Analyst Amit Daryanani from Evercore ISI maintained his Outperform rating on CSCO with a price target of $72. He sees Cisco as being positioned for continued growth in FY2026, driven by AI infrastructure demand and cloud deployments. Notably, he notes that Cisco AI infrastructure orders doubled to $600 million compared to the previous quarter, putting the company ahead of its $1 billion annual target.
William Blair analyst Jason Ader takes a more reserved view on Cisco Systems, issuing a Hold rating with a $66 price target. Despite the company’s recent strong earnings, Ader remains cautious, pointing to “intense competition,” which he believes could limit Cisco’s earnings growth to the “mid-single-digit range.” He also warned of macroeconomic risks, including “increased tariff rates and possible changes in semiconductor export rules,” which could further weigh on the company’s long-term outlook.
Tech Transformation Stays On Trend Despite Headwinds
Cisco’s quarterly results suggest that the integration of Splunk is progressing well, supporting the company’s gradual shift away from lower-margin legacy hardware toward higher-margin software and services. While its core networking business remains a reliable revenue driver, Cisco is clearly evolving, particularly in the areas of observability and security, positioning itself to benefit from broader technology trends such as AI, cloud infrastructure, and cybersecurity.
However, several execution risks remain. The full integration of Splunk is still underway, and Cisco faces intense competition from pure-play cybersecurity firms and established networking rivals. Additionally, external pressures such as rising tariffs could weigh on margins. Cisco’s reliance on acquisitions for growth also raises concerns, especially given that conventional metrics do not consider the stock undervalued.
Analyst sentiment remains mixed, reflecting this balance of opportunity and risk. For investors seeking diversified exposure to key technology segments with relatively lower volatility, Cisco may offer a more stable option, backed by consistent cash flow generation and a track record of returning capital to shareholders.
