Cisco is Overvalued at 4.95X PS: Should You Still Buy the Stock?

Cisco Systems CSCO shares are trading at a premium, as suggested by the Value Score of D. In terms of the forward 12-month price/sales, CSCO is trading at a premium of 4.95X, higher than the Zacks Computer Networking industry’s 4.78X and Hewlett Packard Enterprise’s HPE 0.69X. However, Cisco shares are trading at a discount compared with Arista Networks ANET and Broadcom AVGO. In terms of the forward 12-month P/S, Arista Networks and Broadcom shares are trading at 14.26X and 12.87X, respectively.

CSCO Stock’s Valuation

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So, is the Cisco stock a buy at this level? Let’s find out.

AI Push & Strong Networking Portfolio Aids Cisco’s Prospects

Cisco expects more than $3 billion in AI infrastructure revenues from hyperscalers in fiscal 2026. The company plans to deploy Silicon One architecture across high-performance networking systems by fiscal year 2029. An expanding portfolio with the introduction of a 102.4 terabit per second G300 chip and two new pluggable optics, a 1.6 terabit per second OSFP and an 800-gig LPO (both built with Cisco silicon photonics technology), is driving CSCO’s footprint in high-performance AI infrastructure.

Cisco sees a growing pipeline of more than $2.5 billion in orders for its high-performance networking products across sovereign, Neocloud and enterprise customers ($350 million worth of orders in the second quarter of fiscal 2026). The joint venture with AMD and HUMAIN plans to deliver up to 1 gigawatt of AI infrastructure by 2030. Sovereign solutions are gaining traction as rapid AI adoption is accelerating concerns related to privacy, data governance and regulatory compliance.

Robust demand for AI infrastructure and campus networking solutions is expected to drive CSCO’s top-line growth. The company’s networking portfolio, powered by Silicon One, AI-native security solutions and operating systems, is expanding CSCO’s AI footprint. Networking product orders grew 20% in the reported quarter, which marked the sixth consecutive quarter of double-digit growth driven by hyperscale infrastructure, enterprise routing, campus switching, wireless, industrial IoT and servers. This bodes well for Networking revenues in fiscal 2026.

Increasing AI workloads at the network edge and the emergence of physical AI are benefiting the industrial IoT portfolio. Product orders in the second quarter of fiscal 2026 grew more than 18% year over year, with product orders from service providers and cloud customers surging 65%. Campus networking is benefiting from strong demand for next-gen solutions, including smart switches, secure routers and wireless products. Rapid acceleration in the capacity requirements of the network due to unprecedented levels of network traffic and an ever-evolving threat landscape bodes well for Cisco’s prospects.

CSCO Offers Positive Q3 & FY26 Guidance

Cisco expects non-GAAP earnings between $1.02 per share and $1.04 per share for the third quarter of fiscal 2026. Revenues are expected to be in the range of $15.4-$15.6 billion.

The Zacks Consensus Estimate for CSCO’s third-quarter fiscal 2026 revenues is pegged at $15.52 billion, indicating growth of 9.7% on a year-over-year basis. The consensus mark for CSCO’s earnings is currently pegged at $1.03 per share, unchanged over the past 30 days, indicating year-over-year growth of 7.3%.

Cisco Systems, Inc. Price and Consensus

Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote

For fiscal 2026, CSCO expects revenues to be in the $61.2-$61.7 billion range compared with $56.7 billion reported in fiscal 2025. Non-GAAP earnings are expected between $4.13 per share and $4.17 per share compared with $3.81 per share reported in fiscal 2025.

The Zacks Consensus Estimate for CSCO’s fiscal 2026 revenues is pegged at $61.33 billion, indicating growth of 8.3% from fiscal 2025. The consensus mark for CSCO’s fiscal 2026 earnings is currently pegged at $4.14 per share, unchanged over the past 30 days, indicating year-over-year growth of 8.7%.

Here’s Why CSCO Stock is a Buy Right Now

Year to date, CSCO shares have appreciated 2.9%, outperforming the broader Zacks Computer & Technology sector, as well as Broadcom, Arista Networks and Hewlett Packard Enterprise. While the broader sector, Hewlett Packard Enterprise and Broadcom have declined 3.5%, 9.7% and 7.1%, respectively, shares of Arista Networks have appreciated 1.6% over the same time frame.

CSCO Stock’s Performance

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An expanding portfolio makes Cisco well-positioned for sustained growth in an evolving tech landscape. AI push is noteworthy, along with an expanding networking portfolio. These trends are expected to help the stock rally and bode well for CSCO’s long-term prospects.

CSCO currently carries a Zacks Rank #2 (Buy), suggesting that it is the right time to start accumulating the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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