Cisco Systems Inc. (CSCO, B-, Halal) designs, manufactures, and secures Internet Protocol-based networking products and services for the communications and information technology industries. The company's market capitalization is $309.45 billion, and the current price is $85.54 per share (Musaffa).

Business Analysis

The company's main revenue comes from sectors and segments such as networking, services, security, observability, and collaboration. The Networking and Services segments are the company's main revenue drivers. They form the important physical and digital foundation of modern enterprise IT. The Networking segment mainly provides the hardware required to move data, whilst Services ensure that the hardware remains operational and receives updates under recurring contracts. According to the company's Q2 2026 report, Networking accounted for roughly 53% of revenue, as it is the backbone of the internet and corporate data centers. The company holds a massive lead in core infrastructure, controlling 45% of the global Ethernet switch market and about 76% of the router market (Red Education).

Currently, AI models require a large amount of data to operate instantly across servers. The company supports this by providing its high-end “Silicon One” chips and 800G switches to major cloud providers. In addition, it is difficult for a large corporation to switch from Cisco to another provider because if a company builds its data centers using Cisco’s architecture, the cost and complexity of switching to a competitor are high. This leads to sticky revenue for CSCO (The Globe and Mail). Based on these results, the company's future revenue is expected to increase, and this year will be its strongest.

• Total revenue: $61.2B–$61.7B
• Non-GAAP EPS: $4.13–$4.17
• Q3 Estimated Revenue: $15.4B–$15.6BData from Q2 2026 report of CSCO

Financial Analysis

Cisco's revenue increased slightly over the period shown. In 2024, revenue decreased by about 6% to $53.8 billion because customers focused on installing existing products rather than purchasing additional ones. This period led to an unexpected drop in new product orders. In addition, service provider clients tightened their budgets due to high interest rates and economic uncertainty. In 2025, revenue increased by 5% to $56.7 billion due to demand for AI-ready networking infrastructure, the Splunk acquisition, and the product refresh cycle.

As mentioned above, hyperscale cloud providers ordered a huge amount of Cisco’s high-speed switches and Silicon One chips to support AI workloads in 2025. This was also a main driver of revenue growth for fiscal 2025. Despite a revenue dip in 2024, the company's net income and EBITDA did not change significantly over the last two periods. In 2024, the company generated more than 50% of its revenue from subscriptions, even though hardware sales decreased. While the acquisition of Splunk generated significant revenue, it also brought substantial operating expenses and integration costs. These expenses offset the new revenue; that is why net income and EBITDA changed only slightly in 2025.

Cisco's actual EPS beat market expectations over the last year. There are several reasons why market expectations were lower than actual results. The company beat EPS estimates in its most recent Q2 2026 report, driven mainly by increased AI infrastructure orders and strong demand for campus networking (Investing). Operational efficiency and capital returns from buybacks and dividends helped drive year-over-year EPS growth. While the company generates higher revenue and beats EPS estimates, rising memory and component costs, which are causing challenges in the AI industry, are eating into profit margins.

Valuation Analysis

In recent years, the company's current ratio has decreased compared to previous years. One of the main reasons is Splunk's acquisition, which the company funded with cash and cash equivalents. As a result, the cash balance dropped significantly, while long-term assets increased because Splunk's value was recorded as long-term assets. In addition, Cisco issued new debt to maintain liquidity, which reduced the current ratio. However, a ratio of roughly 1.0 is considered a safe decrease in the current ratio. However, a ratio of roughly 1.0 is considered safe for investors because the cash was used for a strategic acquisition such as Splunk, which is expected to raise future earnings.

As mentioned above, significant investment in AI orders and high-quality earnings, driven by the Splunk effect, contributed to a higher P/E ratio in 2025. Likewise, share buybacks can be one reason for an inflated P/E ratio, as the share price rises faster than earnings growth. Issuing new debt to fund the Splunk acquisition also increased the debt-to-equity ratio in 2025 (Business Times). Even though the ratio is higher than normal, 0.6 is considered a healthy, conservative value for a company with Cisco’s massive cash flow.

Risks

There are several risks associated with Cisco’s business and its operations:

1. Currently, there is a high demand for AI-ready hardware, which is causing shortages of memory components (DRAM and SSDs). This also compressed Cisco’s non-GAAP gross margins by 120 basis points (Investing).

2. In addition, competition between Cisco and its competitors is increasing. Cisco is betting on Ethernet-based AI fabrics like Silicon One, but it competes against NVIDIA’s InfiniBand, which dominates high-performance AI clusters in the market (Seeking Alpha).

Bottom line

Cisco remains a financially solid, well-positioned technology leader, supported by its dominance in networking infrastructure, growing AI-related demand, and recurring subscription-based revenue. Strong market share, a sticky customer base, and the company's expanding role in AI infrastructure are expected to support its long-term growth, while higher component costs, integration expenses from the Splunk acquisition, and growing competition in AI networking are expected to affect its margins.

Sources

1. Musaffa- Cisco Systems Inc
2. Red Education- Cisco vs Competitors: How Cisco Stays Ahead in Networking Technology
3. The Globe and Mail- Cisco (CSCO) Q2 2026 Earnings Call Transcript
4. Investing- Earnings call transcript: Cisco beats Q2 2026 forecasts, stock dips
5. Business Times- Cisco to sell US$13.5 billion of bonds to fund Splunk deal
6. Investing- Cisco shares slide as memory chip price increase weighs on gross margin-
7. Seeking Alpha- Cisco: A Smooth Way To Enter The AI Infrastructure Industry

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