Key Points
The networking equipment company is hit with a post-earnings analyst recommendation downgrade.
A onetime bull now feels the stock rates only a hold for investors.
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A recommendation downgrade from a global bank was the development pushing down Cisco Systems (NASDAQ: CSCO) stock on Friday. The company’s shares absorbed the blow by sinking nearly 5% in price, comparing unfavorably to the relatively modest 0.3% slip of the bellwether S&P 500 index.
Reduced to hold
Well before market open that day, HSBC prognosticator Stephen Bersey lowered his recommendation on Cisco to hold from his previous buy. His price target on the shares is $69 apiece.
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Bersey’s new take on the tech sector mainstay comes just after the company released its earnings for the fiscal fourth quarter of 2025. According to reports, the analyst expressed disappointment that Cisco didn’t perform better during the quarter, given that its key networking segment had just gotten past several quarters of de-stocking.
In his view, the company’s fairly tepid full-year fiscal 2026 guidance indicates that the effects of de-stocking might already have been playing out. Bersey did wax optimistic about Cisco’s take from components required for artificial intelligence (AI) functionalities, but to him this does not sufficiently compensate for weaknesses elsewhere in the business.
High expectations
Savvy Cisco investors are well aware that the company has been making a concentrated push into AI, which is likely the reason many of them traded out of the stock post-earnings.
After all, it did manage to increase revenue and non-GAAP (adjusted) profitability — the former by 8% year over year, landing at almost $14.7 billion, and the latter by 12% to $4 billion. Both figures were higher, if only a bit, than the consensus analyst estimates.
However, any company wading knee-deep in the AI segment is expected to post numbers that are significantly on the upside, and Cisco failed to achieve this. We’re not currently in a very forgiving market for tech stocks, and the recent developments with the company reflect this.
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HSBC Holdings is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.
