Cisco Systems says the AI boom is fueling a "networking super cycle," backed by a 35% surge in product orders and a massive increase in its AI-related sales forecast.
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Cisco Declares AI 'Super Cycle' as Orders Surge 35%
Cisco Systems Inc. is riding a wave of AI-driven demand that its chief executive calls a “networking super cycle,” after the company boosted its AI infrastructure sales target to $9 billion and reported a 35 percent year-over-year surge in total product orders, sending its stock to an all-time high.
"With this AI revolution, everything is dependent upon the network," Chairman and CEO Chuck Robbins said at JPMorgan's 54th Annual Global Technology, Media and Communications Conference. "We see this happening in the hyperscaler business, which we took our AI infrastructure target up to $9 billion for the year from $5 billion."
The order book strength comes from hyperscale cloud providers rushing to build out massive AI clusters, with orders in the networking segment alone jumping by more than half. This fueled a 25 percent revenue increase in the networking division to $8.82 billion in the latest quarter. The growth was broad-based, with orders from public-sector clients rising 27 percent and enterprise customers up 18 percent.
The boom has pushed Cisco’s shares up 57 percent since the start of the year, adding over $170 billion in market value. However, the company now faces the challenge of converting this top-line momentum into cash, as operating cash flow slipped to $3.76 billion from $4.06 billion a year earlier, a divergence that will test its rich 37 times price-to-earnings valuation.
Wall Street Cheers, Cash Flow Falters
The stock's 21 percent gain in a single week, its best in nearly a quarter-century, has been met with a flurry of analyst upgrades. At least six investment banks raised their price targets following the results, with HSBC analyst Stephen Bersey setting a new high at $137, well above the consensus of $114.55. The rally confirms that the AI boom is moving beyond the experimental phase and into large-scale deployment that requires significant networking hardware.
Still, the surge in sales has not translated directly to the bottom line. Free cash flow fell to $3.34 billion in the quarter, dragging the margin down to 21.1 percent from 26.8 percent a year ago. For a stock that has reached record highs, that divergence between revenue growth and cash generation is a key metric investors will be watching. The company also declared a quarterly dividend of $0.42 per share.
Restructuring for an AI Future
To sharpen its focus on high-growth areas, Cisco plans to cut roughly 4,000 jobs, representing less than five percent of its workforce. The savings are expected to be redirected toward its cybersecurity and custom silicon businesses. The restructuring is projected to cost as much as $1 billion, with a significant portion impacting the current quarter.
For the full fiscal year, management is guiding for revenue between $62.8 billion and $63.0 billion, with the fourth-quarter forecast of $16.7 billion to $16.9 billion coming in comfortably ahead of previous market expectations. The real test for the upcoming quarter will be whether the company can prove the "super cycle" story can be sustained by converting its powerful top-line growth into healthier cash flow.
This article is for informational purposes only and does not constitute investment advice.
[1] Cisco Systems CEO Sees AI Fueling a “Networking Super Cycle”[2] Cisco Systems, Inc. (CSCO) Presents at J.P. Morgan 54th Annual Global Technology, Media and Communications Conference Transcript[3] Cisco’s ‘Supercycle’ Sparks a 35% Order Surge and a Historic Stock Rally – But a Cash-Flow Squeeze Clouds the Picture[4] Fair Isaac Corporation (FICO) Stock Is Up, What You Need To Know[5] Viasat, CTS, IonQ, Cognex, and Connection Stocks Trade Up, What You Need To Know
