Cisco Systems (CSCO) Pre-earnings Analysis
Cisco is set to report its quarterly earnings after market close today, and investors are narrowed in on profitability. The company has struck a series of quarterly earnings declines, ending last year with a drop in of -5.6% in revenue and -18% in net income. Last quarter was a bit of an improvement on revenue, which grew at 9.38% to $14B in revenue, which is around their average performance. Although an old technology company, Cisco can’t compare to the growth of the Googles and Microsofts of the world, which are still growing revenue at a rapid pace, but it does provide consistency in earnings being a somewhat mature company, which some investors are attracted to.
Despite Cisco’s lackluster earnings, the stock has been rallying for the majority of the last twelve months, which the exception of the recent market correction. This is likely because investors are hoping Cisco’s artificial intelligence investments will pay off. Cisco is investing heavily in AI infrastructure and working with big names like BlackRock, Microsoft, NVIDIA, and xAI to build secure and scalable AI-ready data centers. As part of the AI Infrastructure Partnership (AIP), the goal is to help raise up to $100 billion for next-gen AI data centers. Cisco has also launched AI-optimized hardware, including smart switches and servers built on NVIDIA’s MGX design, to handle intense AI tasks and support high-performance, secure enterprise systems.
One of the advantages of being an old technology company that’s engraved in the infrastructure is that you usually have a lot of cash at hand and a strong balance sheet, allowing you to spend a lot more than AI start-ups on research and development. Cisco’s free cash flow pile is $12.8 billion and has $45B in positive equity on their balance sheet. Investors are attracted to names with strong balance sheets, especially during times of uncertainty. This may help them on earnings, especially if they surprise investors with good outlook.
Option chain analysis:
The option chain expiring on June 20th currently reflects a possible move of (+/-) $5.00 on Cisco. Shorter dated called are aiming for (+/-) $3.00-4.00.