Cisco Systems (CSCO) shares remained relatively flat despite exceeding expectations in the latest quarterly results published last week. Technology leaders provided both revenue and revenue beats due to strong performance in the security and observability segment.
These results highlight the ongoing migration of Cisco from legacy networking hardware to more diverse and marginal software and services portfolio. The strategic pivot towards AI-powered security solutions seems to be rewarding, but the market hasn’t come to fruition yet. With product mixes, revised upward guidance and multiple analyst upgrades, we maintain our long-term bullish prospects for Cisco.
Cisco’s security segment has emerged as a major growth driver following its strategic shift towards AI-powered cybersecurity solutions. Segment revenues rose 54% year-on-year to $2 billion in the last quarter.
With the $28 billion acquisition of Splunk, Cisco has challenged its competition with pure play cybersecurity companies such as Crowdstrike (CRWD). The acquisition accelerated growth and allowed for the launch of new products such as Hyper Shield and AI Defense. It is an AI-driven solution designed to protect your data centers and cloud environments. In particular, both products are already adopted by Fortune 100 companies.
Splunk has also activated the Cisco Observability segment. This increased revenues for the last quarter by 24%. Prior to the acquisition, Cisco’s organic observability business increased by 3-4% per year. Integrating Splunk features creates more attractive products for businesses deploying AI workloads, enhancing visibility and intelligence.
Together, the security and observability segment has become central to Cisco’s broader AI conversion strategy. For organizations looking for comprehensive visibility, protection and data insights, Cisco places itself as a full spectrum solution provider. Reflecting this momentum, the company expects to generate $56.6 billion in the next quarter.
That said, Cisco’s $28 billion acquisition of Splunk is a major investment, and the initial results are encouraging, but as integration efforts deepen, actual testing is ahead. Ideally, long-term growth is driven by organic innovation rather than large-scale acquisitions. Cisco’s track record in this field is mixed. Better acquisitions such as AppDynamics and WebEx have resulted in uneven results over time.
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Competitive pressure is also an important concern. In the security space, Cisco faces tough competition with professional vendors such as Palo Alto Networks (PANW), Cloud Strike (CRWD), and Zscaler (ZS). Meanwhile, in the networking segment (responsible for approximately half of Cisco’s total revenue), Rivals such as Hewlett-Packard Enterprise (HPE) and Nokia continue to move forward.
In particular, HPE’s proposed acquisition of Juniper Network is a major enhancement to its network capabilities, and is under scrutiny by the US Department of Justice for potential anti-competitive concerns. Delays or failures in a transaction may work in Cisco favor, but the results can affect the competitive dynamics of the sector.
Cisco also relies heavily on hardware sales, exposing supply chain volatility and potential tariff-related margin pressures. Growth in the security and observability segment is promising, but these businesses are still relatively small in size. Continuing momentum is needed for Cisco to prove that the transition to software and AI-driven solutions can offset the slowdown in core networking operations.
On Wall Street, CSCO has achieved a medium buy consensus rating based on nine buys, seven holds and zero sales ratings over the past three months. CSCO’s average stock price target is $70.77, meaning a ~11% upside chance over the next 12 months.
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Evercore ISI analyst Amit Daryanani maintained the CSCO’s outperform rating with a price target of $72. He believes Cisco is positioned for continued growth in 2026, driven by demand for AI infrastructure and cloud deployment. In particular, he points out that Cisco AI infrastructure orders doubled to $600 million compared to the previous quarter, surpassing their annual $1 billion target.
William Blair analyst Jason Adder takes a more modest view on the Cisco system and issues holding ratings at a price target of $66. Despite the company’s recent strong revenue, Adder points out “fierce competition,” which points to “fierce competition.” He also warned of macroeconomic risks, including “increased tariff rates and possible changes in semiconductor export regulations.”
Cisco quarterly results suggest that Splunk integration is on track and supports the company’s progressive shift from lower margin legacy hardware to higher margin software and services. While its core networking business remains a reliable revenue driver, Cisco has clearly evolved, especially in the area of observability and security, positioning it to benefit from broader technology trends such as AI, cloud infrastructure and cybersecurity.
However, some execution risks remain. Full integration of Splunk is still ongoing, and Cisco faces fierce competition that has established a pure play cybersecurity company and networking rival. Additionally, external pressures such as rising tariffs can put pressure on margins. Cisco’s reliance on acquisitions for growth also raises concerns, especially given that traditional metrics are not considered undervalued.
Analysts’ emotions remain mixed, reflecting this balance of opportunity and risk. For investors looking for diverse exposure to key technology segments with relatively low volatility, Cisco offers more stable options, backed by consistent cash flow generation and a track record of returning capital to shareholders.
