Cisco-Splunk deal, Google denies reports of dropping Broadcom: Top Stocks

Tech developer Cisco (CSCO) is set to acquire cybersecurity firm Splunk (SPLK) for $28 billion, which Cisco CFO Scott Herren calls "such a powerful transaction for us" on the data front. Google parent company Alphabet (GOOG, GOOGL) denies speculations of a shaky relationship with chip maker Broadcom (AVGO) after a Reuters report claimed the tech giant was considering dropping the company as its primary AI chip supplier by 2027.

Yahoo Finance Live's Josh Lipton and Akiko Fujita take a look at several trending stocks ahead of Thursday's closing bell.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

AKIKO FUJITO: Well, let's check in on a few of the top trending tickers. Cisco announcing this morning they are buying cybersecurity firm Splunk in a deal valued at roughly $28 billion. Cisco says the deal will accelerate the company's business transformation to become one with more recurring revenue.

Yahoo Finance's Brian Sozzi caught up with Cisco's CFO Scott Herren earlier today to discuss the deal and the importance of protecting customer data in an evolving AI world.

SCOTT HERREN: I think everybody is still trying to figure out gen AI beyond, you know, write a poem for my wife kind of thing and ChatGPT. There's no question that those large language models will have broad applicability across the-- across every company, and this-- and that that applicability will come down to training the model. And training the model requires data, and that's why this is such a powerful transaction for us.

AKIKO FUJITO: So this deal announced today, Josh, you've got two stocks moving in completely different directions. Splunk getting a huge pop on the back of this, up more than 20%. I mean, Cisco, we were talking about this off camera, networking-equipment giant really trying to make this transition into software. They have been quite [? aquisitory. ?] But I know you've been speaking to some analysts who say, I'm not sure this is enough.

JOSH LIPTON: Yeah, so it's interesting. Lots of headlines. I spoke to Jim Fish over at Piper, and he covers Cisco. He knows the companies backward and forward, and he actually likes this deal. And I asked Jim why, and he says because, in his opinion, if Cisco is bringing in Splunk, what you're really hoping to do, he says, is accelerate recurring revenue growth. He thinks that will help. We know that's a priority of CEO Chuck Robbins.

Also by doing this, you're kind of leveraging two real growth areas, AI and security. We know that's also a priority for Chuck Robbins. He thinks, bottom line, it's a good strategic fit.

So when he said all that, Akiko, I was thinking, OK, you're bulled up on Cisco. He's actually on the sidelines. He's neutral because, yes, he thinks this deal does make sense, but their core networking business he says he's not so bullish on, at least in the near term. He sees slower growth there. And he thinks valuation here, it looks fair but not particularly attractive.

AKIKO FUJITO: So the thinking is that even though they're making this transition to software, at least in the medium term, that core business is still the big driver, and he doesn't see-- he's not quite optimistic on that.

JOSH LIPTON: Yeah, exactly. I mean, I think he thought the acquisition made sense. It was interesting because he thought also perhaps this opens up M&A for other deals right now. Maybe we get that trickle turns into a stream, although he said it ain't going to be Cisco after they put down $28 billion. Probably not, right?

All right, well, moving on. Shares of Broadcom sinking after report that executives of Alphabet have discussed dropping Broadcom as a supplier of AI chips as early as 2027. Alphabet responding to the report today saying it does not see any change in its relationship with Broadcom.

This one's interesting, Akiko, for a couple reasons. One is I think you've heard people saying, listen, what Broadcom actually does takes some skill and expertise. Just because you're a tech giant-- you've get a lot of smart engineers and very deep pockets. It doesn't mean you'll necessarily be able to come in and mimic that.

And also some folks were wondering, is this real? Is this a real threat by Alphabet in any way, or was it-- or was it more of, you know what? We're not happy with Broadcom's pricing strategy. Let's send a shot across the bow and see what happens.

AKIKO FUJITO: Yeah, I mean, we talk about Nvidia a lot. Broadcom is seen as the second-biggest winner, you could argue--

JOSH LIPTON: For sure.

AKIKO FUJITO: --in this push towards generative AI.

This report, initially coming from The Information, I think points to one thing, which is just how aggressively companies are trying to move stockpiling these chips and trying to push forward their products on generative AI. I mean, Broadcom at one point-- I mean, JPMorgan estimating they could pull in $3 billion in revenue from Google this year alone because of that accelerated buying. You take the headline that came out this morning from The Information. Then suddenly it becomes, well, where is that additional revenue coming from?

JOSH LIPTON: Yeah, the stock has been absolutely surging this year, in part on that AI story, so not surprising. You see a headline like this, you see some [INAUDIBLE].