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Cisco (CSCO) stock hit a new 52-week high of $66.50 on Thursday, Feb. 13. The bullish momentum is fueled by robust Q2 earnings for its fiscal 2025 that exceeded expectations and an optimistic outlook.
Notably, strong demand for its products led to double-digit growth in annualized recurring revenue (ARR), remaining performance obligations (RPO), and subscription revenue in Q2. Additionally, solid margins cushioned its bottom line, which increased 8% year-over-year to $0.94 per share and surpassed the Street’s forecast.
While Cisco has been trending higher, up about 40% in six months, it still has multiple growth catalysts that could propel the stock even higher. With a strong earnings beat, increasing subscription-based revenue, and expanding artificial intelligence (AI)-driven market opportunities, Cisco could continue to deliver solid financials, which will likely support its stock price in 2025.
Strong Product Demand Environment
Cisco continues to deliver solid growth, driven by strong demand and a transition to a subscription-based revenue model. In the second quarter, the company reported total revenue of $14 billion, marking a 9% increase year-over-year. This growth was supported by a surge in new product orders, which jumped 29%, making it the fourth consecutive quarter of accelerating order growth. Solid product demand reflects the strength of its portfolio.
A key highlight of Cisco’s performance is the continued strength in its ARR, which climbed 22% year-over-year to $30.1 billion. Its product ARR saw an impressive 41% increase, reflecting the company’s ongoing shift toward more predictable revenue streams. Notably, Cisco’s subscription-based revenue now makes up 56% of Cisco’s total revenue, reducing reliance on one-time hardware sales.
Another positive indicator for Cisco’s future performance is its RPO, which represents the company’s contracted revenue yet to be recognized. RPO grew 16% year-over-year to $41.3 billion, with short-term RPO at $21 billion, reflecting a strong backlog that enhances revenue visibility.
Cisco’s management has raised the full-year forecast thanks to the solid demand environment. The company’s top line is projected to range from $56 billion to $56.5 billion, up from its previous estimate of $55.3 billion to $56.3 billion. The adjusted earnings per share (EPS) projection has been revised upward to a range of $3.68 to $3.74 from the prior outlook of $3.60 to $3.66.
AI Offers Significant Growth Opportunity
Cisco is emerging as a major player in the AI space and is well-positioned to benefit from the increasing demand for AI infrastructure. In the second quarter, the company secured over $350 million in AI-related infrastructure orders from webscalers, bringing its year-to-date total to an impressive $700 million. Moreover, with ongoing momentum, Cisco is on track to surpass $1 billion in AI infrastructure orders for fiscal year 2025.
Cisco’s broader networking business is thriving. Orders for its networking products surged by double digits, fueled by strong demand for enterprise switching, webscale infrastructure, and industrial networking solutions. Notably, campus switching orders saw robust growth, and with the return-to-office trend gaining traction, Cisco’s campus switching portfolio and new WiFi 7 access points could see increasing adoption.
The data center market is another bright spot. Cisco has recorded four consecutive quarters of double-digit growth in data center switching orders, and this strength is expected to continue as its 800G Nexus switches become available in April.
As enterprises accelerate their AI adoption, Cisco is well-positioned to deliver solid growth. More businesses are looking for integrated solutions combining networking, computing, and security in AI environments. Cisco has signed several AI system deals that bundle its Nexus switches, UCS servers, and other critical components to power AI applications. The company’s newly introduced Cisco AI POD, an integrated hardware and software offering, is also seeing solid traction.
Security is another area where Cisco is expanding its AI offerings. The company recently unveiled AI Defense, a next-generation security solution designed to help enterprises deploy and protect AI applications. Early access customers have responded enthusiastically, and with general availability set for March, AI Defense could become another key growth driver for Cisco.
The Investment Case for Cisco
Wall Street remains cautiously optimistic about Cisco’s prospects. CSCO has a “Moderate Buy” consensus rating.
Given its strong financial performance, robust demand, growing subscription revenue, and expanding AI-driven opportunities, Cisco remains a compelling investment opportunity, and its stock could continue to trend higher in 2025.
