Despite beating earnings expectations and providing stronger-than-expected guidance, Cisco shares tumbled 8.4% on Thursday. Analysts from Piper Sandler described the company’s outlook as ‘conservative,’ while acknowledging the company’s strong performance.
The stock, which had previously surged over 60% this year, saw investors reacting cautiously to projections of slower growth in the upcoming fiscal year.
Cisco Stock Dips 8% Despite Strong Earnings and Guidance, Analysts Urge Caution
Key Points:
- Cisco delivered a better-than-expected earnings report, but the stock sold off anyway.
- Analysts at Piper Sandler noted that Cisco's guidance appeared "conservative given the current demand environment."
- Prior to Thursday's drop, the stock had seen a significant rally, up more than 60% this year.
Cisco (CSCO) shares experienced a notable slide of 8.4% on Thursday, as investors seemingly overlooked the networking equipment giant's better-than-expected earnings report and optimistic guidance. Despite delivering solid financial results, Wall Street appeared unimpressed, leading to the stock's decline.
For the current quarter, Cisco projected revenue between $18 billion and $18.2 billion, surpassing the $16.8 billion average estimate compiled by LSEG. The company's fiscal fourth-quarter revenue saw an impressive 18% increase, reaching $17.3 billion, exceeding the $16.8 billion analysts had anticipated.
Despite the strong quarterly performance, analysts at Piper Sandler expressed a note of caution. They observed that Cisco's guidance "looks conservative given the current demand environment." Some investors, the analysts noted, "may start to nitpick that we're seeing peak growth." The firm currently holds a 'hold' recommendation on the stock.
The market reaction comes after a significant year-to-date rally for Cisco, with shares soaring more than 60% prior to Thursday's trading session. The company had begun to capitalize on the artificial intelligence boom. However, while Cisco forecasts solid revenue growth of approximately 15% for the current year, analysts predict a deceleration, with sales growth potentially returning to single digits in the next fiscal year.
Cisco CEO Chuck Robbins highlighted the company's overall success during an interview on CNBC's "Squawk on the Street." "We had a record year, we had a record quarter," Robbins stated. Addressing the market's reaction to their guidance, he commented, "After issuing guidance that was better than analysts expected, they said, 'Why are you being so conservative?'" Robbins explained the company's approach, "We're starting a new fiscal year. We're operating in incredible markets. But it's also a time that we're going to start the year being a little bit prudent."
In contrast, KeyBanc Capital Markets maintains a bullish stance, rating Cisco as a 'buy.' Their analysts believe Cisco is poised for market share gains, driven by increased capital expenditures from hyperscalers and ramping spending from neoclouds and other entities. Hyperscalers, the major players in AI infrastructure, placed $4 billion in infrastructure orders during the quarter, bringing the annual total to $9.3 billion. Cisco anticipates this segment, which accounted for approximately $4 billion in revenue last fiscal year, to nearly double to $7.5 billion by fiscal 2027.
Cisco shares closed at $113.47 on Thursday, a significant drop from its record closing high of $130 reached in June.
Watch: Cisco beats on Q4 results
