The market is too optimistic about how much profit Cisco’s networking boom will deliver. AI demand supports continued growth, but fading price increases and cash tied up in inventory should limit the earnings multiple over the next year.
Key points
- 24% revenue growth in fiscal 2028 would support today’s price at my assumed margin and earnings multiple.
- $2.5 billion of cash went into inventory during fiscal 2026, despite flat operating cash flow.
- $102.80 a share is my October 2027 target, allowing continued AI growth rather than a spending collapse.
The call
The market is too optimistic. At 22 times earnings, today’s price requires fiscal 2028 revenue of approximately $90 billion with my forecast profit margin. That means 24% growth over my fiscal 2027 estimate. Alternatively, my revenue forecast requires a 32.4% operating margin, the share of sales left after operating costs.
Cash absorbed by growth and taxes in FY26 ($ billions)Source: Cisco FY26 10-K cash-flow statement, filed September 2, 2026; cash outflows.
I expect growth to slow, not stop. Hardware price increases begin losing their year-over-year benefit during fiscal 2027, while recurring revenue grew only 3% at the latest year-end. Strong orders explain investors’ enthusiasm, but customer financing and inventory absorb cash. The next earnings updates should separate lasting demand from higher selling prices.
Valuation
| My estimate or assumption | Figure |
|---|
| Fiscal 2028 revenue | $79.2 billion |
| Fiscal 2028 operating margin, including stock compensation | 28.5% |
| Fiscal 2028 net income | $18.5 billion |
| Fiscal 2028 diluted earnings | $4.67 a share |
| October 2027 forward earnings multiple | 22 times |
| October 2027 target | $102.80 a share |
Revenue combines $10 billion of hyperscaler AI sales with $69.2 billion elsewhere; earnings assume a 16% tax rate, $600 million of net interest cost and 3.95 billion diluted shares. My 22-times multiple rewards growth but reflects hardware volatility and elevated interest rates. Illustrative scenarios produce roughly $132 with stronger growth and a higher multiple, versus $74 with weaker demand, supporting Sell rather than Strong Sell.
Forecast share price by FY28 operating margin ($)Our scenarios: $79.2B revenue, 16% tax, $0.6B net interest cost, 3.95B shares and 22 times earnings.
Risks
- AI sales could exceed my forecast; watch recognized revenue rather than headline orders.
- Software recovery could sustain a higher multiple; watch recurring-revenue growth and renewals.
- Inventory could become unsalable; watch write-downs and customer rescheduling against supplier commitments.
What would change my mind
An August 2027 outlook supporting fiscal 2028 revenue above $85 billion and an operating margin above 30% would overturn this call.