HSBC reduced its recommendation on Cisco Systems to Hold from Buy and lowered its price objective to $120 from $137 in a note published on Friday, saying the company posted strong fourth-quarter results but does not have a clear near-term catalyst to drive the stock higher.
Analyst rationale
Analyst Abhishek Shukla summarized the bank's view as "Solid results but missing catalyst," adding that the downgrade reflects "valuation and lack of positive catalysts."
Earnings and near-term performance
HSBC reported that Cisco's fourth-quarter non-GAAP operating profit came in 6% above consensus. Non-GAAP earnings per share were $1.22, up 23.2% year over year and between 4% and 5% ahead of estimates.
Outlook and estimate revisions
Cisco provided guidance for fiscal 2027 revenue of $72.8 billion, representing a 15% increase and exceeding the pre-results consensus of $68.8 billion. The company's EPS outlook of $5.08 also topped expectations. In response, HSBC raised its fiscal 2027-28 EPS estimates by between 2% and 6%.
Hyperscaler AI demand and networking forecasts
HSBC expects networking revenue to jump 24.2% in fiscal 2027, driven largely by a 97% expansion in the hyperscaler AI subsegment, before the growth rate moderates to 12% in 2028 and 8% in 2029. Cisco booked $9.3 billion of hyperscaler orders in fiscal 2026, including $4 billion in the fourth quarter. Company management is cited as expecting orders to be "meaningfully higher" this year.
Longer-term growth and valuation
The bank projects Cisco's EPS growth will peak at 32% in the first quarter, then ease to roughly 8% starting in fiscal 2028. On HSBC's numbers, Cisco is trading at 20.9 times calendar 2027 estimates, compared with a sector median of 21.4 times. HSBC views that valuation discount as warranted given Cisco's slower long-term growth relative to peers.
Implications
HSBC's shift to Hold reflects a combination of strong recent operating performance and guidance paired with uncertainty about what will drive further upside for the stock in the near term. The bank adjusted earnings forecasts upward while still signaling that the stock's relative valuation should remain below the sector median unless longer-term growth accelerates.