Evercore is optimistic about Cisco Systems, Inc. (CSCO.US) with dual opportunities: an eight-year network upgrade cycle and resonance with AI business, upgrading its rating to "outperform the market."

On Monday local time, Evercore upgraded Cisco Systems, Inc. (CSCO.US) from "In Line" to "Outperform", with a target price raised from $80 to $100. The core logic behind Evercore's upgrade is the strong growth momentum of Cisco Systems, Inc. in the artificial intelligence (AI) field and the cyclical opportunities brought by the replacement of enterprise networking equipment. The analyst team led by Amit Daryanani at Evercore stated, "While the market is still debating whether Cisco Systems, Inc. belongs to cyclical stocks or structural growth targets, we believe that multiple positive factors are enough to support the company to maintain high single-digit revenue growth and low double-digit earnings per share (EPS) growth in the future; considering its P/E ratio is still below 20 times, it is quite attractive compared to other large technology peers." The analyst team pointed out that the core logic behind this upgrade includes: First, the campus network upgrade cycle. According to their channel research, customers are upgrading to next-generation campus solutions, and the market is expected to continue growing until 2026 (industry compound growth rate of about 6%-8%), with over eight years since the last upgrade cycle. The incremental catalyst is that Cisco Systems, Inc. is about to discontinue old solutions (End of Life, EOL) and end services (End of Services, EOS). In addition, the strong demand for Wi-Fi 7 is driving enterprises to migrate to higher bandwidth ports, leading to more Power over Ethernet (PoE) demand. Second, AI business momentum exceeding expectations. The analyst team at Evercore believes that Cisco Systems, Inc. is expected to achieve about $3 billion in AI revenue in the fiscal year 2026 (about 5% of sales), with orders exceeding $40 billion (compared to $20 billion in the same period last year). The Daryanani team pointed out that this growth is currently being driven by the four major hyperscalers, and with new products like P200 and expansion to enterprise/sovereign customers, this business still has room for growth. The analysts further explained, "Amid lingering supply-side risks, customers are seeking diversified solutions beyond TH5/TH6, thus accelerating the penetration of Silicon One. The P200 opens up markets for Cisco Systems, Inc. based on Scale and Jericho architecture, and as cloud providers seek diversified full-stack vendors, this is expected to drive orders and revenues to new highs. Furthermore, driven by the deployment of 800G pluggable optical modules, Cisco Systems, Inc.'s optical business will also see strong tailwinds (growth of over 25%)." Third, the recovery of the telecom and core enterprise markets. The analysts believe that the recovery of traditional enterprise and telecom markets is currently underestimated by the market and will provide Cisco Systems, Inc. with more diverse sources of growth, especially as enterprises begin to adapt their network architecture for AI workloads. Lastly, EBIT margin expansion. The Daryanani team stated, "Driven by high single-digit revenue growth, Cisco Systems, Inc. is expected to achieve an annual EBIT margin expansion of about 50-100 basis points. Risks include underperformance of the security and collaboration business or growth targets relative to the mid-teens; additionally, fluctuations in the memory industry may pose unforeseen challenges." As of Monday's closing, the stock rose more than 3%, reaching $77.01.