Cisco Stock at Peak: AI Momentum Faces Valuation Headwinds in 2026

Cisco Systems (CSCO) closed Monday at $78.25, hovering near its 52-week peak of $80.82 reached in early December. Over the past year, CSCO has delivered a 33.8% return, substantially outpacing the Computer & Technology sector’s 21.1% gain and leaving peers like Hewlett Packard Enterprise (HPE, +11.7%) and Arista Networks (ANET, +11.5%) in the dust. As investors look ahead to 2026, a critical question emerges: Can Cisco sustain this momentum, or has the stock priced in too much upside already?

Strong Fundamentals Driving Recent Rally

Cisco’s financial trajectory paints an encouraging picture heading into 2026. Annual Recurring Revenues reached $31.4 billion, reflecting a 5% year-over-year increase, while remaining performance obligations climbed 7% to $42.9 billion. These figures suggest robust revenue visibility over the next 12 months.

The company’s order momentum remains impressive. In Q1 fiscal 2026, AI infrastructure orders from hyperscalers totaled $1.3 billion, with full-year AI infrastructure revenues projected at $3 billion. Additionally, Cisco is tracking over $2 billion in pipeline orders for high-performance networking across enterprise, sovereign cloud, and emerging Neocloud segments. Despite facing a potential sovereign glut in certain markets, the company maintains confidence in diversified revenue streams.

AI and Networking Growth Anchoring Expansion

Cisco’s AI footprint is expanding through both scale and breadth. Networking product orders achieved high-teens growth in Q1—marking the fifth consecutive quarter of double-digit expansion—driven by hyperscale infrastructure buildouts, enterprise routing, campus switching, and wireless solutions. Industrial IoT orders surged over 25% year-over-year, benefiting from edge AI workloads and physical AI proliferation.

Campus networking represents another multi-year opportunity, with enterprises deploying next-generation smart switches, secure routers, and Wi-Fi 7 infrastructure. The shift from legacy 4K and 6K switching technology is expected to unlock a multibillion-dollar refresh cycle.

Cisco’s partnership with NVIDIA adds strategic depth. Integration of Cisco Nexus switches with NVIDIA’s Spectrum-X architecture delivers low-latency connectivity for AI clusters, while the co-developed Secure AI factory offers enterprises a blueprint for AI-ready infrastructure deployment.

Operationally, Cisco launched the Nexus 8223 routing system in October, designed to optimize data center interconnectivity for next-generation AI workloads, powered by the proprietary P200 chip.

Guidance Points to Modest but Steady Progress

For Q2 fiscal 2026, Cisco expects revenues of $15.0–$15.2 billion (consensus: $15.12 billion, +8.1% YoY) and non-GAAP earnings of $1.01–$1.03 per share (consensus: $1.02, +8.5% YoY).

Full-year fiscal 2026 guidance calls for revenues of $60.2–$61.0 billion versus $56.7 billion in fiscal 2025 (+7.2% at midpoint). Non-GAAP earnings are projected at $4.08–$4.14 per share, up from $3.81 in the prior year (+7.6% at midpoint). Consensus expectations for $60.76 billion in revenue and $4.10 in earnings have ticked modestly upward, reflecting growing analyst confidence.

Valuation Premium Creating Near-Term Risk

However, Cisco’s rich valuation threatens near-term upside. The stock trades at a forward price-to-sales multiple of 5.03X, significantly above the Computer Networking industry average of 4.58X and HPE’s 0.68X. Zacks assigns the stock a Value Score of D, indicating limited margin of safety.

The core networking business, excluding hyperscaler AI revenues, faces modest single-digit growth projections. Intensifying competition in both networking and AI infrastructure, combined with tariff uncertainty and macroeconomic headwinds, could weigh on execution in 2026. Year-over-year comparisons will also grow more challenging as the AI tailwind anniversaries.

Hold Rating Reflects Mixed Signals

Cisco merits a Hold rating (Zacks Rank #3) given conflicting dynamics. While the AI expansion, security dominance, and growing recurring revenue base justify a premium to legacy tech, current valuation leaves minimal room for disappointment. Investors should await a more attractive entry point—either through earnings execution that justifies the multiple or a pullback that resets expectations for 2026 and beyond.