Can Cisco Systems Inc (NASDAQ:CSCO) Become The Next Big AI Stock?

We recently published a list of top 10 AI stocks Wall Street analysts are upgrading. Cisco ranks 9th in the list. That's why the stock deserves a deeper look.

There has been much uproar about AI stock valuations and how investors are overpaying for mega-cap tech stocks that are promising something that still lies far into the future — productivity gains, real-life AI products and AGI. But the market doesn’t seem to care what the AI skeptics and naysayers believe. There seems to be no end in sight to the AI-led gains in stocks. And analysts are expecting more. Goldman Sachs's Scott Rubner recently said that he sees a "wall of money" heading towards the market. Rubner pointed towards the whopping $7.3 trillion sitting in money market funds and said he believes the floodgates are about to open and investors would funnel that money into stocks. According to Rubner's model, the third quarter of 2024 is when we should expect billions ($29 billion, to be precise) to be flushed into the market.

One doesn’t need to have a crystal ball to know where all of those billions would be headed. AI is the promising theme everyone is betting on and that everyone includes experts, billionaires, money managers and long-term value investors. Tom Lee, Fundstrat Global Advisors co-founder, recently said in a program on CNBC that investors have been "hesitant" for much of the year, but they should just "stick" with "what's working." AI, weight loss drugs and related themes is what's working these days, according to Lee.

Methodology

For this article we picked the top AI stocks Wall Street analysts recently upgraded or gave bullish comments about. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Photo by Dimitris Chapsoulas on Unsplash

Cisco Systems Inc (NASDAQ:CSCO)

Number of Hedge Fund Investors: 58

Cisco Systems Inc (NASDAQ:CSCO) is in the news after the company launched a $1 billion investment fund that would invest in AI startups. Cisco Systems Inc (NASDAQ:CSCO) has also announced a new partnership with Nvidia to simplify the development of generative AI applications. Wall Street considers Cisco Systems Inc (NASDAQ:CSCO) a promising AI stock, thanks to Cisco Systems Inc's (NASDAQ:CSCO)  $28 billion acquisition of Splunk. Cisco Systems Inc (NASDAQ:CSCO) expects the AI switching market to exceed $10 billion in the next three years. Cisco Systems Inc (NASDAQ:CSCO) has several AI-focused products, including AI-native cybersec solution Hypershield, AI assistants and other AI infrastructure solutions.

In May, Cisco Systems Inc (NASDAQ:CSCO) reported strong fiscal Q3 results, beating EPS estimates by 7.3% and revenue by 5.50%. Cisco Systems Inc (NASDAQ:CSCO) also increased its full-year revenue guidance. Bank of America analysts led by Tal Liani said in a note that if we exclude the Splunk effect and go with ~3% FY25 revenue growth guidance, Cisco Systems Inc's (NASDAQ:CSCO) management expects Cisco Systems Inc's (NASDAQ:CSCO) revenue (excluding Splunk's) to grow 5% next year, a solid improvement. Bank of America has a Buy rating and $60 price target on the stock.

Morgan Stanley analyst Meta Marshall last month praised Cisco Systems Inc's (NASDAQ:CSCO) Q3 results, saying Cisco Systems Inc (NASDAQ:CSCO) was able to beat estimates "slightly" with better-than-expected orders. The analyst has an Overweight rating and $58 price target on Cisco Systems Inc (NASDAQ:CSCO). Marshall thinks Cisco's 2025 earnings estimates are "achievable."

Overall, Cisco Systems Inc (NASDAQ:CSCO) ranks 9th in Insider Monkey’s list of Analysts are Upgrading These 10 AI Stocks. You can visit Analysts are Upgrading These 10 AI Stocks to see the other AI stocks that are on analysts' radar. While we acknowledge the potential of Cisco, our conviction lies in the belief that smaller, under-the-radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Cisco but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.