HSBC has moved Cisco Systems to a Buy rating and boosted its price target to $137 from $77, saying a stronger-than-expected demand cycle for AI infrastructure has materially changed the networking company's growth outlook.
Analyst Stephen Bersey, writing in a client note, pointed to Cisco's fiscal third-quarter results as confirmation of that structural change. He highlighted that AI infrastructure orders in the quarter reached $1.9 billion, up from $600 million in the same quarter a year earlier, bringing the year-to-date total to $5.3 billion.
Management updated its targets following the quarter. The company raised its fiscal 2026 AI infrastructure orders target to roughly $9 billion from $5 billion, which - according to the note - implies a significant increase in orders in the fourth quarter. Cisco also lifted full-year AI revenue guidance to about $4 billion from $3 billion. For fiscal 2027, management guided AI revenue of at least $6 billion, implying about 50% year-over-year growth and total-company revenue growth of around 9%.
HSBC attributed the AI outperformance to Cisco's Silicon One chips and Acacia optics, which the bank said were supported by multiple hyperscaler design wins. On a company-wide basis, Cisco reported total revenue of $15.84 billion, a 12% increase year-over-year and approximately 2% ahead of consensus expectations. Non-GAAP earnings per share were $1.06, beating estimates by about 2.5%.
Reflecting the renewed growth outlook, HSBC said it now views AI revenue as having a larger financial impact than previously assumed. The bank outlined three structural growth drivers for Cisco: hyperscaler AI buildouts, enterprise AI networking upgrades, and campus modernization driven by rising traffic and security requirements.
On the modeling side, HSBC raised its fiscal 2026-2029 non-GAAP earnings per share compound annual growth rate estimate to 13.6% from 9.8%. To reflect what it described as Cisco's transition from a lower-growth networking company to a structural AI infrastructure story, the bank applied a higher 29 times price-to-earnings multiple in its valuation work.
Implications
HSBC's actions signal a material re-rating based on AI-related demand and customer design wins. The revised revenue and orders guidance from Cisco, together with the bank's higher EPS growth assumptions and valuation multiple, underpin the upgraded recommendation.
Key points
- HSBC upgraded Cisco to Buy and raised the price target to $137 from $77.
- AI infrastructure orders reached $1.9 billion in the fiscal third quarter, up from $600 million a year earlier; year-to-date AI orders totaled $5.3 billion.
- Management increased fiscal 2026 AI orders guidance to about $9 billion from $5 billion and raised full-year AI revenue guidance to about $4 billion from $3 billion; fiscal 2027 AI revenue was guided to at least $6 billion.
Risks and uncertainties
- The raised fiscal 2026 AI orders target implies a substantial fourth-quarter step-up in orders; execution risk exists if that step-up does not materialize.
- The upgraded valuation and higher price-to-earnings multiple are predicated on a sustained transition to an AI infrastructure company; if AI momentum weakens, the re-rating may not be justified.
- Guidance for AI revenue and orders underpins the outlook; failure to hit those management targets would introduce downside risk to the growth trajectory and earnings assumptions.
Conclusion
HSBC's upgrade and the accompanying financial adjustments reflect a view that AI infrastructure demand has shifted Cisco's growth profile. The bank pointed to rising AI orders, stronger guidance, product-level contributions from Silicon One and Acacia optics, and multiple hyperscaler design wins as the basis for its higher earnings and valuation assumptions. The outlook depends on continued execution, particularly the implied fourth-quarter acceleration in AI orders and the company meeting its elevated AI revenue targets.