I spend much of my working day online, moving among research, market data, writing, and trading platforms. I’ve come to appreciate how much I take a reliable internet connection for granted until a page stops loading or a video call starts lagging during a meeting.
It is easy to overlook the equipment keeping everything connected, even though so much of my work depends on it.
That network runs on equipment like Cisco’s. Cisco (CSCO) ended fiscal 2026 with $63.3 billion of revenue, up 12%. Fourth-quarter revenue was $17.3 billion, up 18%. AI infrastructure orders reached $9.3 billion for the year, including $4 billion in the fourth quarter.
CEO Chuck Robbins called it “another record year,” and said Cisco is well-positioned to support customers wherever they deploy AI. However, after a big run, good news may no longer be enough.
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Cisco stock falls as Morgan Stanley steps to the sidelines
In a note shared with me at TheStreet, Morgan Stanley downgraded Cisco to Equal-weight from Overweight and cut its price target to $120 from $135, an 11.11% drop.
The bank wrote that checks remain solid, but the bar for upside is higher. Shares closed at $103.61 on Nov. 4, then fell 7.62% to $95.72 after the downgrade, according to Yahoo Finance.
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But the stock has still run hard. Cisco is up 26.08% this year versus 7.42% for the S&P 500, and 34.70% over one year against 8.20%.
Morgan Stanley says Cisco has been rerated to parity with the S&P 500 at about 19x forward earnings. It had been Overweight since April 2024, when the stock traded at a discount of more than seven turns.
Cisco reports fiscal first-quarter results Nov. 12 after the close. It guided to revenue of $18.0-$18.2 billion and non-GAAP EPS of $1.32-$1.34.
Morgan Stanley expects $18.3-$18.4 billion in revenue, a 66% gross margin, EPS of $1.36-$1.38, and an AI revenue target raised to $8 billion from $7.5 billion. The bank sees few chances to beat full expectations.
2 Cisco worries: demand pulled forward and thinner margins
Worry one is timing. Partners report unusually strong demand in campus and data center networking. But Morgan Stanley said it is hard to tell how much customers are buying early ahead of price increases, as seen in recent results from Fortinet Inc. (FTNT) and F5 Inc. (FFIV).
Partners also say the campus refresh cycle is no longer early. A Dell’Oro report indicated that campus Ethernet switch revenue grew by double digits in the first quarter due to rising shipments and higher prices, and that DDR4 memory shortages will affect networking supply chains through 2027.
Morgan Stanley’s CIO survey shows some cooling, though Cisco still leads peers. Net spending intentions fell to +28% from +57% and data center intentions to +37% from +55%. Meanwhile, campus upgrade intentions rose to +36%.
Related: Morgan Stanley reveals Cisco’s quiet edge over rivals
I see the same dependence on reliable tech in my own work. Every research task, market update, and trading session relies on systems that should work without interruption. You could see businesses continue to invest in network upgrades, even when budgets are tighter and spending decisions become more selective.
Worry two is margin. AI sales to hyperscalers, the giant cloud companies, have gross margins of about 30% to 40%, well below Cisco’s traditional business. Morgan Stanley expects AI revenue of $9 billion in fiscal 2027 and $12 billion in 2028, above management’s $7.5 billion outlook, and 12.5% of revenue next year.
That dilutes consolidated gross margin about 1.8 points in fiscal 2027, and 0.8 points more in 2028. Partners also say Cisco is pricing more aggressively in AI cloud, which helps growth but limits profit.
Dell’Oro said AI back-end switch sales surpassed front-end sales for the first time in the second quarter, and it expects the market to be supply-constrained for at least one to two years, not demand-constrained.
Cisco plans to raise TSMC’s leading-edge chip wafer volumes about 10 times in fiscal 2027, according to the note. Morgan Stanley flags engineering turnover on Silicon One as an execution risk.
Morgan Stanley’s $120 target and what could change it
The $120 price target is based on a 21x multiple of Morgan Stanley’s 2028 EPS estimate of approximately $5.70, rolled forward from its 26x multiple on 2027 EPS of $5.25.
The bull case is $150, at 25x $6.00, if Cisco becomes a bigger AI player and pricing offsets mix. The bear case is $65, at 13x $5.00, if campus slows, hyperscaler discounting continues, and margins compress.
Morgan Stanley could be wrong if AI spending shifts toward on-premises for security reasons or agents generate far more network traffic. It expects fiscal 2027 revenue of about $73.25 billion, up 16%, and EPS of $5.14, up 18%.
If you are reading this, the bank sees multiple years of double-digit growth, but growth will lean on AI revenue as pricing comparisons arrive in fiscal 2028.
The numbers to watch on Nov. 12 are overall orders and gross margin, not just AI.
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