Cisco stock outperforms broader market: why this analyst thinks it can go higher

Shares of Cisco Systems CSCO rose Friday, outperforming the broader market, after HSBC upgraded the networking giant and sharply increased its price target following the company’s stronger-than-expected fiscal third-quarter earnings report.

Cisco shares gained about 2% during the session, even as the broader market weakened, with the S&P 500 falling roughly 0.79%.

The move added to Thursday’s sharp rally, when Cisco stock surged approximately 13% after the company posted quarterly results and forward guidance that exceeded Wall Street expectations.

HSBC upgraded Cisco to Buy from Hold and raised its price target to $137 from $77, implying nearly 19% upside from Thursday’s closing price.

“We believe 3Q supports a thesis that Cisco’s AI role is becoming structural and that AI revenue is having a larger financial impact than we had expected,” HSBC analyst Stephen Bersey wrote in a note to clients.

AI infrastructure demand drives Cisco outlook

Investor enthusiasm has increasingly centered on Cisco’s growing exposure to artificial intelligence infrastructure spending.

According to HSBC, Cisco generated approximately $1.9 billion (approx. £1.4 billion) in AI infrastructure orders during the fiscal third quarter, up sharply from about $600 million (approx. £454.2 million) in the same period a year earlier.

That brought Cisco's year-to-date AI infrastructure orders to roughly $5.3 billion (approx. £4 billion).

Management also raised its fiscal 2026 AI infrastructure orders target to approximately $9 billion (approx. £6.8 billion), up from a previous target of $5 billion (approx. £3.8 billion).

Cisco additionally lifted its full-year AI revenue guidance to roughly $4 billion (approx. £3 billion) from $3 billion (approx. £2.3 billion) and projected fiscal 2027 AI revenue of at least $6 billion (approx. £4.5 billion), representing approximately 50% year-over-year growth.

HSBC said Cisco’s Silicon One semiconductor platform and Acacia optical networking products were major contributors to the company’s AI-related momentum, supported by multiple hyperscaler customer wins.

The bank now expects Cisco’s non-GAAP earnings per share compound annual growth rate between fiscal 2026 and 2029 to reach 13.6%, up from a prior estimate of 9.8%.

HSBC also said it was assigning Cisco a higher valuation multiple to reflect what it described as the company’s transition from a “low-growth networking company to a structural AI infrastructure thesis.”

Earnings beat and guidance fuel rally

Cisco’s fiscal third-quarter financial results exceeded analyst expectations on both revenue and earnings.

For the quarter ended April 25, the company reported adjusted earnings of $1.06 per share, ahead of analyst estimates of $1.04 per share, according to LSEG data.

Revenue rose 12% year over year to $15.8 billion (approx. £12 billion), also topping Wall Street expectations of approximately $15.6 billion (approx. £11.8 billion).

Looking ahead, Cisco forecasts fiscal fourth-quarter adjusted earnings between $1.16 and $1.18 per share, above analyst consensus estimates of roughly $1.07 per share.

HSBC said Cisco’s future growth would likely be driven by three major areas: hyperscaler AI infrastructure buildouts, enterprise AI networking upgrades, and campus modernization projects tied to rising traffic, security, and latency requirements.

“Despite gross margin pressure, management has credible offsets through pricing, tighter contract terms, supply chain commitments, [operational expenditure] discipline, and lower memory utilization within designs,” Bersey wrote.

Cisco shares have now climbed roughly 50% year to date as investors increasingly position the company as a beneficiary of long-term AI infrastructure spending trends.

Wall Street sentiment toward the stock has also continued improving.

According to LSEG data, 19 of the 26 analysts covering Cisco currently maintain Buy or Strong Buy ratings on the shares, while several other firms, including Morgan Stanley, have recently expressed bullish views on the company’s AI-related growth outlook.