Cisco Reports Earnings – Here's Why AI Will Push Shares Even Higher
Everywhere, there are warnings of an "AI bubble"...
Many analysts see similarities between what's going on with AI today to the Internet in the late 1990s and 2000... And things are starting to feel a little bubbly...
Consider CoreWeave (CRWV), an AI cloud-computing company, which is up 113% since its IPO in March (even after a recent drawdown). Or look at Palantir Technologies (PLTR), which trades at 111 times sales.
If you look back 25 years ago, the poster child of the dot-com bubble was Cisco Systems (CSCO).
Cisco reaped the benefits of the dot-com boom, though it wasn't a typical "dot-com company." It made the routers and switches behind the Internet network that the dot-com companies operated on.
Cisco's position was dominant. In 1996, it controlled 78% of the router market. And it enjoyed strong margins and returns on capital.
By early 2000, the dot-com bubble had expanded, and telecom companies invested in a massive build-out of Internet and broadband networks. As investors got giddy about astronomical growth, Cisco's price-to-sales ratio soared to 63 times. It traded at 188 times earnings.
Of course, the Internet bubble burst. Wild spending on dot-com companies ended. Cisco started losing money, and its valuation collapsed. Shares fell 86% by late 2001...
But all the rosy predictions about Cisco's business came true...
It's no exaggeration to say that Cisco built the Internet. Its valuation just wasn't sustainable in 2000.
Today, Cisco is at the center of another boom... AI.
Even though the market is starting to feel frothy thanks to the excitement over AI, Cisco is far from reaching bubble status like it did in 2000. Despite its exposure to AI, the stock still trades at a reasonable valuation... And there is still plenty of growth ahead.
Right in the Middle of the AI-Spending Wave
Let's start by breaking down Cisco's business and its opportunity in AI before we recap its earnings report from yesterday...
Networking makes up by far the biggest chunk of Cisco's sales, at 50%. This includes routers, switches, and data-center networking hardware.
Cisco gets 27% of sales from services, like software subscriptions and technical support. Services revenue tends to be very stable and recurring.
Security products make up 14% of sales. Cisco got more into cybersecurity when it purchased the software company Splunk in 2024.
The rest of Cisco's revenue is split between collaboration (tools for communication and conferencing) and observability (software for monitoring systems and detecting issues).
Here's the big AI opportunity for Cisco: Its products are crucial for building data centers.
Consulting firm McKinsey projects that global demand for data-center capacity could almost triple by 2030. About 70% of that demand will be thanks to AI.
You see, AI is not just about building models... It's also about data flow, reliable storage, and secure networking. Cisco builds much of the networking, switching, routing, and secure connectivity that these systems rely on.
Cisco sits right in the middle of the AI spending wave. Its high-margin switching and networking hardware are indispensable to connecting new racks of graphics processing units and servers.
The company is a beneficiary of AI investment. And the big hyperscalers – Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT) – all affirmed that the money will keep flowing.
Cisco is an under-the-radar AI stock. And recent results show that AI is making this business even better.
Cisco Soars on Earnings
Cisco reported its fiscal first quarter earnings last night. The stock is soaring 5% as of this afternoon because of the outstanding results...
Quarterly revenue came in 8% higher than it did a year earlier. Net income grew by 6%. Both revenue and profit growth beat the consensus projection.
Of course, the market is forward-looking. So investors were the most pleased to hear that management expects sales to be as much as $61 billion at the end of the fiscal year (end of July). This is about $1 billion more than previously expected.
AI was the main reason for optimism.
The company said that AI orders from large cloud providers came out to $1.3 billion in the quarter. That's up from $800 million just a quarter ago.
CFO Mark Patterson said in the press release, "Our relevance in AI continues to build."
But again, even though Cisco is a part of this AI boom, it still trades at a reasonable valuation. As of last night, it traded for just 5 times sales and 26.7 times earnings.
For comparison, the tech-heavy Nasdaq trades for 5.5 times sales and 37 times earnings.
To see if you should consider buying shares while they're making new highs today, let's turn to our proprietary Stansberry Score...
One of the Best Stocks in the Market
The Stansberry Score helps us rank any stock with a simple score between 0 and 100. It builds our strategies for assessing value, business strength, and momentum into a one-click way to make sure that the stocks you own are quality.
Our system gives Cisco an overall "A+" grade. It's ranked No. 24 out of the 4,547 stocks we track. Take a look...
Cisco should also catch the attention of dividend investors with its yield of 2.2%. More important, the company is currently on a streak of 14 consecutive annual dividend increases, making it a "Dividend Achiever" (a company with at least a decade of annually rising payouts).
Again, Cisco is a major beneficiary of AI. But it's not all over the financial media like other popular AI stocks.
It will be soon.
This is a cash-gushing business that our Stansberry Score loves.
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Here's to our health, wealth, and a great retirement,
Jeff Havenstein
November 13, 2025