Amidst the ongoing surge in demand for AI infrastructure, Cisco (CSCO.US) has secured a supply chain advantage through its proprietary Silicon One chip platform. Following the company's latest earnings report, several Wall Street firms have raised their price targets.
Cisco CEO Charles Robbins stated during the Q3 earnings call that the company's AI infrastructure order backlog from hyperscale cloud providers has reached $1.9 billion, a significant increase from $600 million in the same period last year. This growth is primarily driven by the strong performance of Silicon One systems and the Acacia optical communications business.
CFO Mark Patterson highlighted that the in-house chip design provides the company with greater supply chain control. "We directly manage the wafer, substrate, packaging, and testing processes, giving us more leverage within the supply chain," Patterson said. He also noted the company has secured chip supply for the next eight months of the 2026 calendar year and is in negotiations for 2027 supply.
Robbins further emphasized, "This is one of Cisco's greatest strengths. We have more control over our supply chain and are less dependent on external suppliers compared to others."
Wall Street analysts largely concur with this assessment. Analysts at J.P. Morgan noted that Cisco's long-term investment in the Silicon One roadmap has allowed it to avoid the supply chain constraints currently affecting the networking equipment industry, providing a competitive edge over rivals reliant on third-party commercial chips. J.P. Morgan reiterated its Overweight rating and raised its price target from $96 to $120.
KeyBanc Capital Markets, part of KeyCorp, maintained its Overweight rating and increased its target from $87 to $125. KeyBanc pointed to Cisco's Q3 results significantly exceeding expectations, with order growth accelerating to 35%. Excluding AI hyperscale customers, orders still grew by 19%. Furthermore, the company's FY2026 guidance also surpassed market expectations. The firm believes Cisco's revenue growth could notably exceed its previous long-term target of 4% to 6% by 2027.
Bank of America maintained its Buy rating and raised its price target from $95 to $114. The bank noted that Cisco's gross margin of approximately 66% remains stable, supported by product price increases, portfolio optimization, and the transition of some products from DDR4 to DDR5. Analysts added that Cisco's chip strategy provides a stable supply chain environment, unlike peers facing widespread supplier order reductions.
Citigroup maintained its Buy rating and raised its target from $90 to $112. Citigroup noted that most of Cisco's systems now utilize the Silicon One architecture, with plans to migrate all high-performance systems to the platform by fiscal year 2029.
Other adjustments include Piper Sandler raising its target from $86 to $132 while maintaining a Neutral rating. Truist Financial maintained its Buy rating and $94 target. Barclays significantly increased its target from $76 to $121. Evercore raised its target from $110 to $150.
Among peers, competitor Arista Networks (ANET.US) was up over 3% in early Thursday trading, while Hewlett Packard Enterprise (HPE.US) gained 5% and Dell Technologies (DELL.US) rose 1.7%.
Comments