HSBC downgrades Cisco, says further gains will be harder to come by

HSBC downgraded Cisco Systems (CSCO) to Hold from Buy, lowering its price target to $69, citing concerns that the networking equipment 'restocking party' is concluding sooner than expected. This assessment is based on lukewarm quarterly results, decelerating growth in remaining performance obligations, and a modest FY26 revenue guidance of +5% YoY, with AI infrastructure orders being offset by weakness elsewhere. The downgrade suggests limited upside given the stock's significant recent gains and perceived fair valuation, aligning with the majority of analysts already holding a neutral stance.

Analysis

HSBC has downgraded Cisco Systems (CSCO) to a Hold rating, reducing its price target from $73 to $69, which implies marginal downside from current levels. The downgrade is predicated on the view that the recovery-driven 'restocking' cycle for networking equipment is concluding sooner than anticipated. This thesis is supported by several key data points: while networking revenue growth accelerated to +12.2% year-over-year in 4QFY25 from a low base, the company's forward guidance for FY26 projects a more modest +5% YoY revenue growth. Furthermore, slowing growth in leading indicators such as remaining performance obligations and backlog, which rose just +4.2% YoY in the last quarter, substantiates concerns about decelerating momentum. Although Cisco secured over $2 billion in AI infrastructure orders in FY25, the analyst notes this strength is insufficient to offset weakness in other business areas. The stock is now considered fairly valued following a significant run-up of 17% in 2025 and 42.8% over the past year, which outpaced the S&P 500. This neutral stance from HSBC aligns with the broader market consensus, where 24 of 38 analysts covering the stock also rate it as a hold.

Key Decisions for Investors

• Given the stock's significant recent outperformance and the analyst's view of fair valuation, investors with existing long positions may consider trimming exposure to realize gains.
• Potential investors should note the decelerating forward-looking indicators, such as the modest 5% FY26 revenue guidance and slowing backlog growth, which suggest limited near-term upside and support the neutral rating.
• Monitor future earnings releases closely to see if AI-related order growth can accelerate enough to materially offset the observed weakness in the core networking segments and drive revenue growth beyond current guidance.