Cisco Could Be Entering a More Lasting Growth Phase, Says Morgan Stanley

Morgan Stanley is forecasting that Cisco (CSCO) could be entering a new period of lasting growth. According to analyst Meta Marshall, the company appears to be entering a “more durable growth phase,” as quoted by Seeking Alpha. The firm also has an “Overweight” rating on the tech giant with a price target of $135. Fueling that call are several key catalysts, including upgrades with networking equipment, demand for artificial intelligence, and cybersecurity.

A Major Networking Upgrade Is Nearing

One of the biggest catalysts for Morgan Stanley's bullishness is that Cisco's customers are still in the early stages of upgrading their networking equipment. As of now, Marshall says that only about 7% of Cisco’s Catalyst 4K and 6K (switches that are used by companies to connect computers, phones, servers, and other devices together) have been updated so far. That means there are still plenty of other companies that will need to upgrade.

After all, Cisco can't support every switch it has ever made forever. Newer switches are designed for things like higher speeds, newer security capabilities, and newer software. Catalyst 4K is expected to near the end of its life cycle by the end of 2026. Catalyst 8K is expected to reach the end of its life cycle by the close of 2027. And, as companies upgrade with newer technology, Cisco could benefit from it because it has such a large installed customer base using its equipment.

AI Is Adding Another Growth Opportunity

Artificial intelligence is providing another major source of demand for Cisco. AI systems require significant amounts of data to move between servers and data centers. That creates demand for high-speed networking equipment, switches, and chips. Fueling excitement, Cisco has already seen a significant increase in orders from hyperscalers. For example, the company received $4 billion in AI infrastructure orders during its latest quarter, bringing its total AI infrastructure orders for the fiscal year to $9.3 billion. From here, Cisco expects to generate about $7.5 billion in AI infrastructure revenue in fiscal 2027. Plus, Cisco does not need to compete directly with companies such as Nvidia (NVDA) to benefit from the AI boom. Instead, it can provide the networking infrastructure needed to connect the computers and data centers running AI applications.

Morgan Stanley also highlighted Cisco's supply chain as a competitive advantage. For one, Cisco builds its own custom chips. It also has a direct relationship with Taiwan Semiconductor Manufacturing Company (TSM), or TSMC, one of the world's most important chip manufacturers. Morgan Stanley expects Cisco's chip volumes with TSMC to increase roughly tenfold in fiscal 2027 across 3-nanometer, 5-nanometer, and 7-nanometer manufacturing processes. The 3-nanometer technology is currently the tightest area of supply. Cisco's exposure to this technology is currently limited, with its G300 chip yet to enter production.

Security Could Be Another Source of Growth

Cisco's security business is another area that Morgan Stanley believes investors may be underestimating. The company is seeing healthy demand for “refreshed firewalls and its Hypershield” security technology, as also noted by Seeking Alpha. The company is also “simplifying the portfolio by retiring legacy offerings and concentrating investment behind newer platforms,” Marshall added.

At the end of the day, Cisco is benefiting from several trends at the same time: AI infrastructure spending, data center expansion, networking upgrades, replacements, and growing cybersecurity needs. In addition, most importantly, an upgrade cycle is in its early stages. And, again, if only around 7% of Cisco's Catalyst 4K and 6K installed base has been refreshed, there could be significant demand ahead.

What Do Analysts Say About CSCO Stock?

Of the 25 analysts covering CSCO stock, 14 have a “Strong Buy” rating, one has a “Moderate Buy” rating, and 10 have a “Hold” rating. Overall, Cisco has a consensus “Moderate Buy” rating. The mean target price of $134.14 implies a potential upside of 21% from current levels. Meanwhile, the high price target of $165 implies a potential for a further 49% growth from here.