Citi Raises Cisco Investment Rating and Price Target

Citi announced on Wednesday that it has upgraded its investment rating on global networking equipment giant Cisco Systems, Inc. from “Neutral” to “Buy” and raised its price target from $52 to $62.

According to Citi's report, although only about 2% of Cisco's revenue comes from artificial intelligence (AI)-related areas, the company is well-positioned to capitalize on AI application opportunities. In particular, Ethernet switch technology is critical for connecting graphics processing units (GPUs) required for AI, and demand in this segment is expected to grow significantly.

Ethernet switch market share expected to exceed 50%

Citi further states that the AI switch market is estimated to be around $10 billion, with the market share of Ethernet technology expected to gradually approach 50 percent, higher than the previous estimate of over 40 percent. Ethernet switches are expected to capture more than half of the AI application market by 2026. This growth driver will significantly enhance Cisco's competitiveness in the AI infrastructure market, thereby driving its future business growth.

Cisco continues to expand its AI business footprint

In its fourth quarter fiscal 2024 earnings report, Cisco forecasted a $1 billion increase in AI product orders for fiscal 2025. The company's CEO, Chuck Robbins, emphasized on the August earnings call that Cisco is actively integrating AI assistant technology into its products to improve the efficiency of customer and partner access to support, which will help enhance the competitiveness of its products and enable it to better capitalize on AI market opportunities.

Shares hit recent highs, reflecting market optimism

Cisco's shares closed up 4.25% to $56.38 on Wednesday, its highest close since September 12, 2023, thanks to a rating upgrade from Citi. So far this year, Cisco shares have risen 11.60%, showing the market's optimistic expectations for the company's future growth potential.

AI demand drives performance of related companies

Cisco is not the only company benefiting from the development of AI technology. Fiber optic giant Corning mentioned in July that its performance benefited from a surge in demand for generative AI-related fiber optic network products.

Additionally, fiber optic network operator Lumen Technologies noted in August that the continued growth of AI applications is increasing the demand for robust connectivity between data centers. With its world-class fiber optic network infrastructure and advanced digital services, Lumen expects to play a significant role in this wave of AI growth.

AI market expected to grow strongly in the future

The market for AI-related hardware and software is expected to grow at a rate of 40-55 percent per year, with the market reaching between $780 billion and $990 billion by 2027, according to a Bain & Company study released in September. This indicates that the market for AI applications and related infrastructure will have an extremely wide scope of development and huge market potential in the coming years.