Cisco's AI Strategy Could Drive Growth Revival Despite Mixed Results

Cisco Systems is strategically positioned to leverage artificial intelligence (AI) opportunities to restore its growth trajectory.

"Cisco is off to a promising start in fiscal 2025," Robbins stated. "Our customers are making investments in critical infrastructure to prepare for AI, and given our comprehensive portfolio, we are distinctively positioned to capitalize on this opportunity."

The messaging echoes sentiments from the previous quarter's report.

"We achieved a strong conclusion to fiscal 2024," Robbins had noted then. "During our fourth quarter, we witnessed steady customer demand with order growth across operations as customers depend on Cisco to connect and secure all aspects of their organizations in the AI era."

GAAP EPS dropped to $0.68 in fiscal 2025's first quarter, an 18 percent decrease from the previous year, following a 44 percent annual decline in the preceding quarter.

Conversely, product orders showed robust growth, increasing 20 percent year-over-year as demand normalizes, accelerating from 14 percent in the previous quarter. Additionally, the GAAP gross margin reached 65.9 percent, while the non-GAAP gross margin hit 69.3 percent, exceeding company guidance.

Scott Herren, Cisco's CFO, commented, "Revenue, gross margin and EPS in the first quarter exceeded or reached the upper end of our guidance range, generating strong operating leverage. We maintain our focus on effective execution and operational discipline while strategically investing in innovation and growth."

Cisco's growth pattern has fluctuated considerably over the past decade, following its peak performance period. Between mid-2019 and early 2021, the Silicon Valley giant experienced revenue declines due to "creative destruction"—divesting from low-growth products while redirecting resources toward high-growth opportunities.

Wall Street remains skeptical about whether Cisco's transformation strategy will restore its former market dominance. The company's stock has gained 28.20 percent over the past five years, substantially underperforming the S&P 500 Index's 91 percent increase.

However, market analysts and industry experts align with Cisco's leadership in viewing AI as a catalyst for renewed growth.

Freedom24's head of investment research, Maxim Manturov, identifies positive indicators in the company's guidance.

"Despite revenue declines, Cisco has elevated its full-year revenue projection to between $55.3 billion and $56.3 billion, while raising its earnings per share forecast to $2.26 to $2.38," he informed The Epoch Times via email. "This adjustment follows the company's strategic shift toward higher-growth segments, including a 7 percent workforce reduction."

Manturov views Cisco's recent entry into the AI server market using Nvidia chips as evidence of its AI commitment. This strategic move positions Cisco to benefit from enterprise IT infrastructure upgrades focused on AI implementation.

Furthermore, he suggests that Cisco's $28 billion Splunk acquisition will strengthen its software offerings and cybersecurity capabilities.

"These strategic moves demonstrate Cisco's commitment to business model transformation through expanding recurring revenue and emphasizing innovation in high-growth sectors," he noted.

"They're maintaining strong operational discipline, managing costs effectively, while pursuing strategic innovation opportunities," he shared with The Epoch Times via email.

However, Khan notes that declining revenue and profitability challenges indicate ongoing headwinds in certain product segments. He also believes the full impact of the Splunk acquisition remains to be seen, suggesting a delay in realizing benefits from this strategic investment.

"While Cisco appears well-positioned for growth, particularly in AI infrastructure, they face near-term challenges in stabilizing revenue and enhancing profitability," Khan observed. "If AI market momentum continues, Cisco could be favorably positioned for the remainder of the year."

Sidharth Ramsinghaney, director of strategy and operations at cloud communications firm Twilio, interprets Cisco's first-quarter results as reflecting both strengths and challenges in its transformation journey.

"Though the 6 percent revenue decline raises concerns, achieving 69.3 percent gross margins—a two-decade high—demonstrates robust operational execution and market positioning," he explained to The Epoch Times via email.

Moreover, considering the market potential, he views Cisco's $1 billion AI order target for fiscal year 2025 as conservative.

"Their cautious approach might mean missing growth opportunities in the rapidly expanding AI infrastructure market," he suggested.

Ramsinghaney believes Cisco's $40 billion remaining performance obligation and improved fiscal year 2025 guidance reflect management's confidence in the transformation strategy.

"The critical factor will be accelerating core networking growth while scaling new AI, security, and observability initiatives," he concluded. "The next 12-18 months will be decisive in demonstrating their ability to execute this dual strategy."