On Feb 13, Cisco Systems' shares increased by 6.4% in premarket trading following the company's optimistic forecast due to strong demand for its cloud networking equipment, amidst considering potential impacts from recent U.S. tariffs.
The surge in demand for the company's ethernet switches and routers used in data centers is attributed to increased investments in artificial intelligence infrastructure by businesses. J.P. Morgan analysts, led by Samik Chatterjee, highlighted robust cloud demand, substantial order growth from hyperscalers, and improving demand from telecommunications customers preparing their networks for AI-related traffic.
Despite general economic uncertainty, Cisco is actively addressing the tariffs imposed on Canada, Mexico, and China, as well as on steel and aluminum, with CFO Scott Herren confirming that the company's third-quarter adjusted gross margin forecast factors in the expected tariff costs.
Analysts from Morgan Stanley suggested that the marginal decrease in the gross margin outlook for Q3 is primarily due to the anticipated tariff impact. Several analysts have raised their price targets for Cisco stock, according to data collated by LSEG.
Comparatively, Cisco's 12-month forward price-to-earnings ratio stands at 16.23, significantly lower than Arista Networks' 43.21. Cisco's stock has surged by over 17% in 2024, while ANET has experienced a more substantial 87% increase during the same period.