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Cisco Systems (CSCO), a leading provider of networking, security and collaboration solutions, is scheduled to report its fiscal fourth-quarter 2025 earnings on Wednesday after the market close. Analysts estimate earnings per share (EPS) of 98 cents on revenue of approximately $14.63 billion, reflecting 7.3% year-over-year revenue growth and about 16% year-on-year free cash flow growth to just under $4.1 billion. The company’s performance has been influenced by trends in artificial intelligence (AI) infrastructure, cybersecurity demand and enterprise digital transformation. Cisco’s year-to-date total return is nearly more than 23%, outperforming QQQ by ~11% as of Friday. However, macroeconomic uncertainties, including potential tariffs and competitive pressures, introduce risks. Bull case: The bullish outlook for Cisco centers on its positioning in high-growth areas such as AI infrastructure and software-centric services, which are expected to drive sustained revenue expansion and margin improvement. On the May 14 earnings call, the company highlighted that they had received over $1 billion in AI infrastructure orders year to date, exceeding their fiscal year target early. (Cisco’s fiscal year runs from Aug. 1 to July 31). Cisco has “three pillars” in their AI opportunity: AI training infrastructure for webscale AI inference/enterprise clouds AI network connectivity. Additionally, Cisco announced a partnership with Nvidia to create a unified architecture and secure AI solutions. Cisco’s valuation remains relatively attractive, trading at 18.9x FY estimates and 17.8x forward adjusted earnings estimates. This multiple is more in keeping with a cyclical/hardware-based business, while Cisco’s been shifting towards recurring revenue streams, with software subscriptions now comprising over 50% of total revenue. Not only do technology services tend to be more consistent than hardware sales, but the cost of providing them is considerably lower. Product revenue is estimated to be ~48% of the total, while associated costs are ~75% of the total for the trailing 12 months. Put differently, services are more consistent AND have a higher margin. The company’s FY free cash flow estimate of $13.4 billion represents a free cash flow yield of about 4.7%, Bear case: Cisco’s traditional networking hardware faces commoditization risks, and while AI orders are promising, the greater than $1 billion in AI orders the company highlighted in May represented between 2%-3% of the company’s total FY-to-date revenues of more than $40 billion. One could argue that the stock’s significant year-to-date outperformance reflects significant optimism, and the aforementioned cost of revenue from the product/hardware side could lead to margin compression in the event of inventory overstocking. Analysts are also forecasting $4.03 in adjusted EPS for FY2026, only 6.3% annually. That’s not only less than many AI technology companies, but actually well below the rate of earnings growth exhibited by the S & P 500 generally, although these two are closely related, admittedly due to the outsize effects of technology behemoths like Nvidia. Earnings related implied move (options): The options market is implying a move of approximately 5%, which is in line with the historical average. One way to play a modestly bullish view in Cisco is by purchasing a longer-dated December 72.5 calls financed in part with the sale of a nearer-dated strangle, such as the September 67.5/80. This would maintain a longer-term bullish perspective while seeking to capitalize on the “vol crush” that frequently follows earnings in the nearer-dated September options. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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