When You Should Buy My No. 1 AI Stock
There are plenty of similarities between today's market and the tech bubble of the late 1990s and early 2000s.
Right now, lots of AI stocks are trading at nosebleed valuations despite having little to no profits to speak of. SpaceX (SPCX), for example, is burning through cash but trades at more than 70 times sales.
That's insane.
Back in 2000, Cisco Systems (CSCO) was the poster child for nosebleed valuations.
Cisco reaped the benefits of the dot-com boom, though it wasn't a literal "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. By 1996, it controlled 78% of the router market. And it enjoyed strong margins and returns on capital.
In early 2000, the dot-com bubble 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.
Of course, the Internet bubble burst. And the wild spending on expanding the Internet ended. Cisco started losing money, and its valuation collapsed. Shares fell 86% by late 2001...
It's no exaggeration to say that Cisco was a crucial element in building the Internet by providing the switches and routers that moved information around the globe. However, its valuation just wasn't sustainable.
Fast-forward to today, and Cisco still helps big organizations set up the "plumbing" of the Internet...
Networking accounts for by far the biggest chunk of Cisco's sales, at 50%. This segment 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 recurring, which makes it very stable.
Security products make up 14% of sales. Cisco expanded its cybersecurity operations 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).
Now, 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 triple by 2030. About 70% of that demand will be thanks to AI.
Data centers' servers are all networked. That means they need devices like Cisco's.
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.
That's a big part of why Cisco is one of the most profitable businesses in the tech sector...
In the most recent quarter, Cisco grew its revenue by 18%. Plus, it has a gross margin of 65% and a free-cash-flow margin of nearly 20%. That means the company keeps about 65 cents of every dollar it generates, and nearly 20 cents of every dollar it earns turns into free cash flow.
On top of all that, Cisco increases its dividend payment every year. It's a "Dividend Achiever" – a company with at least a decade of annually rising payouts.
Cisco is easily one of my favorite AI stocks. Since I recommended the company in my Retirement Millionaire newsletter in February 2025, the position has gone up 82%.
And I believe this is still a stock that long-term investors should own. Cisco still has a reasonable valuation, unlike many other AI stocks.
Of course, the question is... When should you buy?
The stock has been volatile lately. Will it continue its longer-term trend higher... or will it move lower?
For the answer, we can turn to my new StockTracker tool.
In general, the market moves in cycles. Sectors and stocks come into favor for a time and outpace the market, then lag a bit as others catch up. As a result, stocks rotate in a predictable fashion, round and round again, in a pattern that looks a lot like this...
My StockTracker tool shows where a stock or sector is on this graph. And my research has pinpointed exactly where you want stocks to be... We call it the "Buy Zone," which is represented by the green circle in the chart below.
You'll want to avoid buying stocks that are turning lower in the "Topping" quadrant or that are in the "Bearish" quadrant.
Let's look at where Cisco is today...
As you can see, Cisco is still making its way through the Bearish quadrant. And it still has a while to go before it will reach the "Bottoming" quadrant and enter our Buy Zone.
That means you shouldn't put any capital into Cisco today. It's likely to underperform the S&P 500 Index in the weeks or even months ahead.
However, once it's within our Buy Zone, you'll have your opportunity to pounce. That'll be your chance to buy it at the perfect time and position yourself for gains. All you have to do is be patient and watch our StockTracker.
The StockTracker is a powerful tool. No matter what stock or fund you're interested in buying, you should check where it's positioned in my system. That way, you can make sure you're buying it at the right time.
To learn more about my easy-to-use StockTracker tool and how it can help you maximize your gains, click here.
What We're Reading...
- Something different: New research suggests short-form video addiction is dismantling kids' resilience.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
August 26, 2026