Good evening investors!

Every Thursday (outside of earnings season) we release our latest “Deep Dive” — a high level, easy to follow stock analysis designed to give our Edge+ members an EDGE when it comes to properly valuing a company. We do the heavy lifting so you can make more sound investing decisions.

Today’s deep dive target is CSCO — one of the largest networking companies in the world.

In today’s article we will look at the company’s performance, recent results, and dive deeper into its valuation to determine whether the stock is a BUY, SELL, or HOLD, based on our opinion alone.

Alright, grab your evening cocktail, find a cozy spot and let’s dive in.

Introduction

I (Chris) have been long Palo Alto Networks (PANW) since early 2019, through the pivots, the product expansions, and the stock’s remarkable climb of over +700%. As an engineer, cybersecurity isn’t just another growth theme to me, it’s foundational. And over the years, PANW has been one of the best ways to express that conviction, combining industry leadership with consistent innovation.

But as PANW evolves from a hypergrowth disruptor into a high-quality, cash-flowing compounder, I’ve been looking to balance my exposure with a complementary name that brings a different profile to the table: more diversified, more stable, but still firmly rooted in the cybersecurity ecosystem.

Over the past few weeks, I’ve gone deep down the cybersecurity rabbit hole, studying earnings reports, cash flows, competitive dynamics across the space, and even had several industry conversations. I don’t chase momentum or rotate in and out of names. I move with research, conviction, and size, and I don’t buy unless I believe the story can play out over years, not months.

I narrowed the list down to a few names. Okta was close, but multiple engineers and people in the field I spoke with raised concerns about its competitive moat, particularly with Microsoft aggressively gaining share in identity access.

Microsoft is, of course, a great name to own. Their security business is growing fast, and they’re embedded across the enterprise stack. But everyone talks about Microsoft, and most of us already have exposure to it in some form, whether through direct holdings or index funds. I wanted to dig deeper. I wanted to find something that wasn’t already in every portfolio, but still had the infrastructure, cash flow, and upside potential to be a long-term winner.

I also looked at CrowdStrike, Fortinet, and CyberArk - three names with strong technology, real traction, and leadership positions in their respective domains. But the reality is, all of them are trading at aggressive premiums. Great businesses, yes, but at 30x–50x forward earnings, you need a flawless execution runway just to justify the current prices. As a value-conscious investor who moves with conviction and size, I struggled to digest those multiples in today's macro environment.

That led me to Cisco. While best known for networking infrastructure, Cisco has quietly built a formidable cybersecurity stack, layering in firewall, zero trust, XDR, and most recently, observability through the Splunk acquisition. For investors like me who value conviction, cash flow, and platform breadth, Cisco is a compelling counterweight to PANW.

And then there’s the history. Cisco was once the face of the dot-com bubble, peaking in 2000 as the most valuable company on earth, only to spend the next two decades in the wilderness. Now, 25 years later, the stock is finally knocking on the door of its all-time highs. The question is whether this the breakout moment long-term investors have waited for, or will Cisco remain forever stuck in the shadow of its former self? This deep dive explores why I believe the setup, both in the business and in the chart, may finally be turning in Cisco’s favor.

Edge Score

We have been diligently working behind the scenes to develop several stock analysis systems for our members. Recently we unveiled our first tool — The Edge Scoring System.

The system takes tons of data and provides a score for 5 different metrics:

• Valuation

• Future Growth Projections

• Past Performance

• Financial Health

• Dividend

The system then takes these five metrics and provides an overall rating for the stock, which we refer to as the Edge Score.

Here is our full Edge Score for Cisco:

Below, we will further break down each category and share our methodology for scoring for this company.

Company Background

Cisco Systems, Inc. is an American multinational technology conglomerate headquartered in San Jose, California. It was founded in December 1984 by Leonard Bosack and Sandy Lerner, two Stanford University computer scientists who pioneered the concept of local area networking (LAN) across multiple protocols.

Today, Cisco is best known for designing and selling networking hardware, enterprise software, cybersecurity solutions, and cloud infrastructure technologies. Its products and services power much of the world’s internet infrastructure and digital enterprise backbone.

The company operates across three primary segments: Infrastructure Platforms (switches, routers, and wireless hardware), Applications and Security (including Webex collaboration tools and a growing cybersecurity portfolio), and Services (technical support, consulting, and subscription-based offerings).

Over the past decade, Cisco has strategically shifted from a legacy hardware vendor to a more software- and subscription-driven model. This transition has been accelerated through targeted acquisitions such as Duo Security, ThousandEyes, and most recently, Splunk, which adds powerful observability and threat detection capabilities to Cisco’s security and analytics stack.

Cisco’s cybersecurity footprint now includes firewall, zero trust, XDR, and endpoint protection—positioning the company as a full-stack security vendor competing with names like Palo Alto Networks, Microsoft, and CrowdStrike. Its expanding AI-ready infrastructure and network automation tools further align with broader digital transformation and enterprise cloud trends.

Chuck Robbins has served as Chairman and CEO since 2015, overseeing Cisco’s evolution toward recurring revenue, hybrid cloud leadership, and enterprise resilience in a rapidly shifting IT landscape.

Source of Revenue

Cisco generates revenue through a diversified mix of hardware, software, and services, with a strategic shift over the past decade toward recurring, software-based income streams. Its business is organized into three core product categories and one services segment:

Secure, Agile Networks (45-50% of revenue)

This is Cisco’s largest segment and includes:

• Switching and routing hardware for data centers and enterprise networks

• Wireless access points, controllers, and SD-WAN solutions

• Optical networking infrastructure for service providers

This segment serves as the backbone of global internet and enterprise connectivity, and Cisco remains a market leader in enterprise and campus networking solutions.

Internet for the Future (10-12% of revenue)

Focused on next-generation architectures and high-performance networking for cloud hyperscalers and service providers. This includes:

• Silicon One chips

• 800G optical transceivers

• Segment routing and converged SDN platforms

It’s a key strategic pillar as Cisco looks to power AI workloads and high-throughput edge networking environments.

Collaboration (7-8% of revenue)

This includes:

• Webex Suite (video conferencing, messaging, events, and call center solutions)

• Unified communications hardware and software for enterprise environments

While growth has moderated post-COVID, Cisco continues to invest in hybrid work and AI-driven collaboration enhancements.

Security (8-10% of revenue)

One of Cisco’s fastest-growing segments, spanning:

• Firewalls, endpoint protection, identity access, and email/web security

• Zero trust, XDR, SASE, and cloud-native threat detection

• Integration with Splunk for observability, SIEM, and analytics

Security is a critical growth lever as organizations modernize their digital defenses in an increasingly complex threat landscape.

Services (~25% of revenue)

This segment includes:

• Technical support and subscription-based software licenses

• Professional services and implementation consulting

• Cloud-based monitoring, lifecycle management, and analytics

Services provide a recurring revenue stream with high margins and support Cisco’s long-term goal of shifting its business mix toward software and subscriptions.

Cisco’s revenue model is increasingly driven by recurring software and service revenue, which now accounts for over 45% of total revenue. This transition improves margin visibility, reduces cyclicality, and better aligns the company with enterprise IT spending trends.

Past Performance

In this section we will go over the company’s recent earnings results and dive into their financial performance over the last few years.

Stock Price History

Cisco’s stock chart is one of the most iconic in market history, not because of how high it’s gone, but how long it took to get back.

At the peak of the dot-com bubble in March 2000, Cisco was the most valuable company in the world, trading above $80 (split-adjusted) with a market cap north of $550 billion. Fueled by investor exuberance over the internet build-out, Cisco was viewed as the backbone of the new digital age. But as the bubble burst, the stock collapsed, dropping more than 85% over the next two years.

For the next two decades, CSCO remained a case study in what happens when valuations get too far ahead of fundamentals. Despite growing revenue, building a global enterprise presence, and paying consistent dividends, Cisco shares struggled to reclaim their former highs.

Over the past 10 years, Cisco’s stock has climbed steadily from the mid-$20s in 2015 to just above $65 today. The rise was gradual, marked by consistent enterprise demand, a shift toward recurring software revenue, and improving capital returns. After dipping below $35 during the COVID crash in 2020, shares rebounded sharply, peaking around $64 in 2021 before pulling back amid macro headwinds in 2022 and 2023.

The breakout in 2024–2025 has been notable. Cisco is now trading near $66, inching closer to the dot-com peak set 25 years ago. Momentum indicators like MACD and money flow suggest renewed accumulation, and the stock is approaching this long-term ceiling with stronger fundamentals than ever before. The setup is now in place to potentially clear one of the most persistent resistance levels in modern market history.

Earnings History

From 2015 to 2018, EPS remained relatively flat around the $2.00 mark. A meaningful acceleration began in FY2019, with EPS rising to $2.99 just before the pandemic. Earnings dipped in 2020 and 2021 due to COVID-related disruptions but recovered by 2022, peaking at $3.31.

More recently, EPS has come under modest pressure, declining to $2.29 in 2024 before stabilizing at $2.45 in the latest fiscal year. Despite the dip, the stock has rebounded strongly, suggesting that investors may be looking past near-term softness and pricing in future growth tied to AI infrastructure, cybersecurity, and recurring software revenue.

Overall, Cisco’s share price has broadly followed its earnings path, flattening during stagnation, rallying with growth, and now breaking out again as the company’s positioning improves.

Recent Earnings Report

Cisco reported a solid Q3 FY25, with revenue and EPS both coming in ahead of expectations.

The company’s shift toward software and security is clearly gaining traction, with major strength in Splunk-led security and double-digit subscription growth. Cisco also raised full-year guidance, signaling confidence in the AI and enterprise demand environment.

🔑 Key Points

• Revenue Beat: Cisco posted revenue of $14.15B, up 11% YoY, slightly ahead of estimates by 0.71%.

• Security Surge: Security revenue jumped 54% YoY to $2.1B, reflecting the impact of Splunk and demand for integrated threat detection.

• AI Tailwind: Cisco received $600M in AI infrastructure orders in Q3, pushing year-to-date AI orders past $1B.

• Healthy Margins: Gross margin improved to 68.6%, and operating income surged 46% YoY to $3.2B.

• Shareholder Return: Cisco returned $3.1B to shareholders (dividends + buybacks), while keeping expenses flat YoY.

👀 What You Need to Know

Cisco’s transformation is taking shape. With over $5.6B in software revenue this quarter (+25% YoY) and a growing base of recurring revenue, the company is gradually shedding its old identity as just a hardware vendor. Security, AI infrastructure, and automation are becoming central pillars, and the guidance raise reflects that confidence. While networking growth remains steady, it’s the shift in mix that could unlock a higher valuation multiple over time.

Income Statement

Cisco delivered stable financial performance in FY2024, showing modest top-line growth alongside continued discipline in cost control and shareholder returns.

Thank you for joining us for this Deep Dive of Cisco.

If you enjoyed this deep dive, be sure to LEAVE A COMMENT. We look forward to hearing your thoughts on Cisco and our analysis. And let us know what stocks you want to see in the future.

Thank you, and until next time investors!

Mark & Chris

The Stock Investor’s Edge

Disclosure

This deep dive is for educational and informational purposes only. The authors are NOT financial advisors, thus cannot recommend for you to personally to buy or sell any positions. Positions taken on a particular stock are opinions of the authors and only the authors. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.