Bank of America Reaffirms Bullish Call on Cisco Following Earnings Selloff

Cisco Systems Inc. delivered record fourth-quarter fiscal results and raised its forward guidance, yet market expectations drove a sharp selloff in its shares. The stock closed at $112.90 on Aug. 18, falling significantly below the $123.88 benchmark referenced in a recent research note from Bank of America. Despite the drop, BofA analyst Tal Liani reaffirmed a Buy rating and a $150 price target, as detailed in reporting by Yahoo Finance.

Liani's price target implies an upside potential of approximately 33% from the Aug. 18 closing price. The bullish stance comes after Cisco reported fiscal fourth-quarter revenue of $17.3 billion, an 18% increase compared to the same period last year, alongside adjusted earnings of $1.22 per share. Networking sales surged 28% year-over-year to $9.8 billion, driven by sustained capital expenditures on data centers and artificial intelligence capabilities.

Order growth outpaced overall revenue expansion during the quarter. Total product bookings increased 35%, while networking orders jumped 40%. Orders originating from Cisco's four largest hyperscale cloud providers expanded by more than 100%. Excluding hyperscalers, product bookings still grew 25%, accelerating from 19% in the prior fiscal quarter and demonstrating broader adoption among general enterprise customers.

Management projects this demand momentum to continue into the upcoming fiscal year. For the first quarter, Cisco expects revenue between $18 billion and $18.2 billion, with adjusted per-share earnings ranging from $1.32 to $1.34. Full-year revenue is forecasted to reach as high as $73.4 billion. Furthermore, the networking giant updated its fiscal 2027 target, doubling its core annual growth outlook from 5% to 10%, with projected revenue between $72.2 billion and $73.4 billion and adjusted per-share earnings of $5.05 to $5.11.

Cisco recorded $4 billion in hyperscaler AI infrastructure orders during the fourth quarter alone, bringing its full-year AI order total to $9.3 billion. The hardware maker recognized approximately $4 billion in AI infrastructure revenue in fiscal 2026 and anticipates that figure will grow to $7.5 billion in fiscal 2027. BofA projects that fiscal 2027 AI orders will easily pass the $9 billion benchmark set this year, while momentum in the company's security business continues to normalize following pricing revisions tied to its Splunk acquisition.

Based on these factors, Bank of America raised its fiscal 2027 adjusted earnings estimate for Cisco to $5.08 per share from $4.77, and increased its fiscal 2028 estimate to $5.47 per share from $5.21. However, the surging demand for hardware has impacted profitability. Cisco's fourth-quarter adjusted gross margin contracted to 66.3% from 68.4% a year earlier due to a higher proportion of hardware sales. BofA forecasts gross margins will drop further to roughly 64.5% in fiscal 2027, about 150 basis points below current Wall Street consensus estimates.

Valuation has also drifted higher relative to historical benchmarks. Liani estimates Cisco is trading at roughly 25 times its projected calendar 2027 enterprise value to free cash flow, well above its five-year average multiple of 16. Nevertheless, the bank expects the broader AI and enterprise hardware demand cycle to ultimately overcome valuation and margin headwinds as recent bookings convert into recognized sales.