Cisco Is Fine Post Earnings: Cisco And IBM Might Be The 'Anti-AI' Tech Stocks

Cisco (CSCO) shares recently declined 7.75% last week, following Q1 '26 revenue guidance of $14.45-14.65 billion and EPS guidance of $4.00-4.06, which were largely in line with expectations. Despite the drop, the networking giant now anticipates significantly improved EPS growth of 7-8% and revenue growth of 5% annually for fiscal years '26-'28, a notable acceleration from its historical performance. Trading at 16x FY26 EPS with a 5% free cash flow yield and with the Splunk acquisition fully integrated, Cisco is presented as a cash-generative, diversifying asset in a market hyper-focused on AI, with the author suggesting it remains an "easy long" at current valuations.

Analysis

Following its recent earnings report, Cisco's (CSCO) stock corrected by 7.75% last week, creating what the source suggests is a new entry point for investors. While Q1 '26 revenue guidance of $14.45-$14.65 billion trails the current consensus of $14.76 billion, the full-year EPS guidance of $4.00-$4.06 is in line with market expectations. The key takeaway is management's upgraded forward outlook for fiscal years 2026-2028, which projects a significant acceleration to 7-8% annual EPS growth and 5% annual revenue growth, substantially above the 5-year historical averages of 4% and 2%, respectively. Post-decline, the stock trades at 16x FY26 earnings with a compelling 5% free cash flow yield and low capital expenditures relative to cash from operations. The full integration of Splunk has enlarged the Security segment to 13% of total revenue, which grew 9% year-over-year, providing a new growth vector to potentially offset an expected slowdown in the legacy networking business, which still constitutes 52% of revenue.

Key Decisions for Investors

• Consider the recent share price decline as a potential buying opportunity, given the stock now trades at a more attractive 16x forward P/E with a 5% free cash flow yield.
• Evaluate Cisco's potential for a valuation re-rating based on its new guidance for accelerated EPS and revenue growth of 7-8% and 5% respectively, a significant step-up from its historical performance.
• Investors seeking portfolio diversification may find Cisco appealing as its value proposition is anchored in stable cash flow and the Splunk integration, offering a lower correlation to the AI-centric tech sector.
• Monitor the performance of the integrated Splunk business, as its ability to drive growth in the Security segment is critical to offsetting the anticipated slowdown in the legacy networking division.