Cisco stock at its most overbought since 2018 — and a top pro sees 25% upside

Cisco stock price continued its bull run this week and is now trading at its all-time high.

It has jumped in the last six consecutive weeks, bringing its market capitalization to nearly $400 billion.

Still, despite the stock being highly overbought, Jay Woods, a popular Wall Street analyst, believes that CSCO stock may surge by over 25% after its earnings.

Wall Street pro makes the bullish case for Cisco stock 

Woods, a popular Wall Street insider, believes that the Cisco stock price may jump to between $110 and $120 this quarter, citing its strong growth momentum amid the ongoing artificial intelligence (AI) boom. He added:

“Right now it’s up 25% year to date, but last quarter they missed. Last quarter it was down 12% after a strong quarter, but people [were] concerned about the margins when it came to the memory spend.”

Woods joins other analysts who are bullish on the company moving into their earnings. However, the reality is that the stock remains much higher than what analysts expect. 

For example, in a recent note, JPMorgan’s Samik Chatterjee boosted his target for the stock from $95 to $96. Similarly, Truist’s Matthew Niknam boosted the target to $94.

The average estimate among analysts is that the Cisco stock price is $90, lower than the current $98.

That is a sign that the stock has crossed the estimates, with more targets expected when the company publishes its financial results on Wednesday this week.

Analysts are pricing in modest growth 

Data compiled by Yahoo Finance shows that analysts predict that the Cisco Systems business continued growing in the last quarter, helped by the ongoing AI boom that has boosted demand for its servers and networking products.

The average estimate among analysts is that the revenue will jump by nearly 10% to $15.5 billion, with the earnings-per-share (EPS) rising from $0.96 to $1.04.

Its annual revenue is expected to grow by 8.73% to $61.7 billion, with the EPS rising to $4.16.

The most recent results showed that Cisco’s business continued growing, with its hyperscaler AI infrastructure rising to $2.1 billion, marking the sixth consecutive quarter of growth.

It expects to take over $5 billion in AI orders, a number that may ultimately be higher than expected, as evidenced by the surge in capital expenditure plans. 

Cisco continued to return cash to their investors. It bought shares worth over $1.3 billion in the second quarter and boosted its dividend payments to its shareholders.

Cisco Systems stock is at extreme levels ahead of earnings

CSCO stock chart | Source: TradingView

The weekly chart reveals that the CSCO stock has been in a strong bull run this year.

It recently crossed the important resistance level at $87.87, its highest point in February, invalidating the double-top pattern.

The stock has moved much higher than the 50-week and 100-week moving averages.

With the stock trading at $98, the 200-week moving average is at $61.42. As such, there is a risk that the stock may go through mean reversion soon. 

The Relative Strength Index (RSI) has jumped to the extreme overbought level of 77, its highest point since 2018.

Therefore, there is a risk that the potential strong results have been priced in, which may push the stock to retrace some of the gains. 

If this happens, the stock may drop and retest the key support level at $87.87.

However, in an era of exuberance, this view may not be realized as we experienced with Intel recently. Its stock was up sharply before earnings, a rally that accelerated after this happened.