Cisco Systems Stock Drops Following HSBC Downgrade Amid Disappointing Earnings and Ongoing Inventory Issues

Cisco Systems (CSCO) stock declined 4.47% to $66.20 after HSBC downgraded its rating from buy to hold. The downgrade was influenced by Cisco's disappointing fiscal Q4 2025 earnings and underperformance in its networking segment. HSBC analyst Stephen Bersey noted that Cisco's lackluster full-year fiscal 2026 guidance and prolonged de-stocking effects would not be balanced by potential growth through AI components. Cisco's current P/E ratio is near its five-year high, and its operating margin has been declining over the past five years. The stock's P/B ratio is near its five-year high, and insider activity shows a pattern of selling. Investors will be watching Cisco's upcoming earnings report on November 13, 2025.

Cisco Systems (CSCO) stock experienced a significant decline, falling by 4.47% to $66.20 following a downgrade from "Buy" to "Hold" by HSBC. The downgrade was primarily influenced by Cisco's underwhelming fiscal Q4 2025 earnings and disappointing performance in its networking segment. HSBC analyst Stephen Bersey cited Cisco's lackluster full-year fiscal 2026 guidance and prolonged de-stocking effects as reasons that would not be balanced by potential growth through AI components.

Cisco Systems reported adjusted earnings per share (EPS) of $0.98 on revenue of $14.6 billion in fiscal Q4 2025, meeting analyst expectations [1]. However, the company's performance marked a 13% year-over-year (y-o-y) growth in EPS, a 7% increase in operating income, and a 14% rise in revenue. These figures were slightly better than the previous quarter's guidance. The company's acquisition of Splunk (NASDAQ:SPLK) will be included in Cisco's organic numbers for fiscal Q4 2025, which is expected to bolster Cisco's cybersecurity offerings and potentially drive organic growth in the security segment [1].

Despite the positive earnings report, HSBC has cited mixed signals from insiders and the stock's valuation as reasons for the downgrade. Corporate insider sentiment towards Cisco Systems has been negative, with an increase in insiders selling their shares over the past quarter [2]. Additionally, the stock's valuation remains reasonable, given its 4% to 5% free-cash-flow yield [1].

Looking ahead, Cisco is expected to report $14.6 billion in revenue and $4.9 billion in operating income for fiscal Q1 2026, with EPS expected to be $0.97. These figures suggest a slower growth rate compared to the previous quarter, with expected y-o-y growth of 6%, 4%, and 7% respectively [1]. Cisco's stock has seen a 21% year-to-date (YTD) increase, trading at 17x expected fiscal 2026 earnings with an expected 6% growth rate in EPS next year [1].

The stock experienced a 2% decline in after-hours trading following the earnings report, but it has added nearly a fifth of its value in 2025 through Wednesday’s close [2]. Despite its slow historical growth, Cisco has shown signs of improvement, particularly in its AI infrastructure orders. The company's AI infrastructure orders have surged past $600 million, outpacing prior run rates and indicating a strong demand for AI infrastructure [3].

From a portfolio construction standpoint, Cisco remains a non-correlated name, making it a suitable addition for a longer-term, patient investor. The company's ability to capitalize on AI infrastructure and cybersecurity trends could drive future growth.

Investors will be closely watching Cisco's upcoming earnings report on November 13, 2025, to gauge the company's performance and potential impact on its stock price.

References:
[1] https://www.investing.com/analysis/cisco-earnings-preview-splunk-acquisition-impact-on-q4-results-200665214
[2] https://www.marketbeat.com/instant-alerts/filing-cisco-systems-inc-nasdaqcsco-shares-sold-by-forsta-ap-fonden-2025-08-08/
[3] https://www.investopedia.com/cisco-ceo-sees-massive-opportunity-as-ai-infrastructure-orders-grow-11790481