Cisco Systems: Time to Hit the Pause Button? What Investors Need to Know Now
Cisco Systems (CSCO) has been a standout performer in 2025, with shares climbing over 17% year-to-date and nearly 43% over the past 12 months, comfortably outpacing the S&P 500. But recent signals from HSBC suggest that the party might be winding down. The global banking giant downgraded Cisco from “buy” to “hold,” trimming its price target from $73 to $69—implying a modest downside of about 0.4% from recent levels. This cautious stance is a critical alert for investors who have been riding Cisco’s impressive momentum.
HSBC analyst Stephen Bersey highlights a key dynamic: the “restocking party” that fueled Cisco’s recent growth appears to be over. Cisco’s networking revenue surged from a steep -23.5% year-over-year decline in Q1 FY25 to a robust +12.2% in Q4 FY25, driven largely by sector-wide inventory replenishment after several quarters of destocking. However, the company’s guidance for FY26 projects only a 5% revenue increase, coupled with a slowdown in growth of remaining performance obligations and backlog (up just 4.2% year-over-year in Q4 FY25). This suggests the restocking tailwind is fading faster than expected.
What does this mean for investors? First, the market may have already priced in much of Cisco’s near-term growth potential. Despite more than $2 billion in AI infrastructure orders last fiscal year—a promising sign given AI’s explosive demand—weakness in other segments is offsetting this strength. The stock’s valuation appears fair, limiting upside in the near term.
From a strategic standpoint, investors and advisors should reconsider their exposure to Cisco. Given the shift from rapid recovery to moderate growth, it’s prudent to adopt a more cautious stance. This could mean trimming positions or reallocating capital to sectors or companies with clearer growth trajectories.
Here’s an actionable insight: The AI infrastructure orders are a silver lining that shouldn’t be ignored. Cisco’s foothold in AI-related hardware positions it well for the long haul, especially as AI adoption accelerates across industries. However, investors should focus on monitoring how effectively Cisco leverages this opportunity to offset cyclical pressures in traditional networking.
A recent study from McKinsey highlights that global AI adoption is expected to double in the next two years, driving massive demand for data infrastructure. Cisco’s challenge—and opportunity—will be to translate this macro trend into sustained revenue growth beyond the current restocking cycle.
What’s next? Investors should watch Cisco’s upcoming earnings closely for signs of whether AI infrastructure sales can accelerate and compensate for slowing growth elsewhere. Additionally, keep an eye on backlog trends and guidance revisions, as these will be early indicators of the company’s growth trajectory.
In summary, while Cisco remains a formidable player with strong fundamentals, the current environment calls for a nuanced approach. The restocking boost is fading, and growth is moderating. Investors should balance optimism about AI-driven demand with caution around cyclical headwinds. Diversification and active portfolio management will be key to navigating these shifts.
For those seeking alternatives, consider networking and tech firms with more aggressive AI integration or those benefiting from emerging 5G infrastructure rollouts. Firms like Arista Networks and Juniper Networks are worth watching as they may capture market share if Cisco’s growth slows.
In the fast-evolving tech landscape, staying ahead means not just following the momentum but anticipating the inflection points. Cisco’s recent downgrade is a timely reminder to reassess and realign strategies before the market shifts further. Keep your eyes on the data, and be ready to act decisively.
Source: HSBC downgrades Cisco, says further gains will be harder to come by