Cisco’s $9 Billion AI Bet Fuels a 55% Stock Surge, But Technicals and Cash Flow Temper the Euphoria

Cisco posts record $15.84B revenue on AI demand, raising AI order target to $9B. Stock up 55% YTD but overbought RSI of 76 and high P/E signal caution. Restructuring cuts 5% of jobs to reallocate resources.

The networking giant’s transformation into a direct beneficiary of the artificial intelligence buildout has triggered a rally that few on Wall Street predicted. Cisco Systems shares have surged roughly 55% since the start of the year, currently trading around €101, and posted a weekly gain of nearly 20% following its latest earnings release. Yet beneath the surface, a series of technical and financial cross-currents may be giving investors pause.

The third quarter of fiscal 2026 delivered record revenue of $15.84 billion, up 12% from a year earlier. Adjusted earnings per share came in at $1.06, comfortably ahead of consensus estimates. The networking segment — long considered a mature revenue generator — jumped 25% to $8.8 billion, driven by hyperscalers racing to upgrade their infrastructure for artificial intelligence workloads.

Cisco has now booked $5.3 billion in AI-related orders since the beginning of the fiscal year. Management dramatically raised its full-year target for those orders to $9 billion, up from a previous forecast of $5 billion. Overall company orders climbed 35%, underscoring the breadth of demand that now spans both AI-specific equipment and traditional enterprise networking upgrades.

Still, the stock’s ascent has pushed it into technically overbought territory. The relative strength index stands at 76, a level that historically has preceded consolidation. With a forward price-to-earnings ratio of 36 — versus a sector average of 31 — the valuation leaves little room for error.

The rally has been fuelled in part by a wave of analyst upgrades. CICC lifted its price target to $125 from $96, while HSBC went further to $137. At Morgan Stanley the new target is $120, and Evercore issued the most bullish call on the Street at $150. Each sees Cisco playing a central role in what they describe as a new investment cycle in networking hardware.

To sharpen that focus, Cisco is undertaking a reorganization that will eliminate fewer than 4,000 positions, roughly 5% of its workforce. Chief Financial Officer Mark Patterson has framed the move not as a cost-cutting exercise but as a reallocation of resources toward chips, optics, security and artificial intelligence. The restructuring will carry a pre-tax charge of up to $1 billion, with approximately $450 million expected in the current quarter.

That quarter, the fourth of the fiscal year, is already shaping up strongly. Cisco forecasts revenue of $16.7 billion to $16.9 billion and adjusted earnings per share of $1.16 to $1.18. For the full year, the company expects top-line sales of as much as $63.0 billion.

One area that bears watching is the company’s cash generation. Operating cash flow slipped to $3.75 billion in the third quarter, while capital expenditures rose sharply. Analysts nonetheless project growing earnings ahead, and Cisco continues to return capital aggressively: it repurchased $1.3 billion of its own shares during the quarter, leaving $9.6 billion remaining under its current buyback authorization.

The next major catalyst arrives later this month. Cisco will host its annual user conference in Las Vegas from May 31 to June 4, where management is expected to detail the next phase of its artificial intelligence strategy. For a stock that has already priced in much of the AI narrative, the summit may prove decisive — particularly if the hyperscaler order pipeline shows signs of broadening beyond the $9 billion target.