Cisco's 'networking super-cycle' drives growth; efficiencies push up operating margin: analysts

What happened

Cisco benefited from strong demand in networking products, helping it exceed market estimates in its first quarter and raise its full-year guidance. Bank of America expects demand to continue for several quarters and forecast Security revenue growth accelerating from 7% in Q1 to more than 10% by Q4.

Confirmed

Global impact / market context

Continued orders could support Cisco’s revenue and give it room to improve operating results, while faster Security growth could add another source of sales. But the article also notes moderating enterprise growth and shares down nearly 3% before trading, highlighting uncertainty about how durable demand will be.

Analyst inference

Analysts tie networking demand to AI infrastructure, campus upgrades, security improvements, sovereign infrastructure and hybrid data centers. Bank of America and J.P. Morgan reiterated positive ratings and $150 price targets, while Cisco’s shares were down nearly 3% in pre-market trading as one analyst cited moderating enterprise growth.

Confirmed

What to watch

1. Watch whether Cisco’s product orders continue growing after rising 21% year over year, compared with 13% a year earlier; sustained orders would support the demand outlook. Analyst inference
2. Track Security revenue: it grew 7% year over year in Q1, and Bank of America expects 8% in Q2 and more than 10% by Q4. Proposed
3. Look for further evidence of moderating enterprise growth, since weaker customer demand could offset AI-related networking orders and make Cisco’s raised full-year guidance harder to achieve. Analyst inference

Evidence

• seekingalpha.com