Cisco (NASDAQ: CSCO) emerges as strong survivor from 2000 tech rout

Networking giant Cisco Systems (NASDAQ: CSCO) was washed up and left for dead in the technology bust of 2000, with the stock tumbling almost 80% in the 12 months through March 2001.

The share price moved little for the next eight years amid investor consensus that Cisco’s focus on hardware made it a dinosaur in the networking industry. But a funny thing happened on the way to the graveyard: Cisco adapted. It turned its focus to software, and it’s now a powerhouse in cloud, cybersecurity and artificial intelligence services.

The stock has almost quadrupled since July 2012 and soared 28% over the past year. That compares to 12% for the S&P 500. 

Last week, the company reported stronger-than-expected earnings and raised its forecast for the rest of the year. For the quarter ended April 26, Cisco posted profit of $2.49 billion, or 62 cents a share, compared to $1.89 billion, or 46 cents a share, a year earlier.

Adjusted per-share earnings totaled 96 cents, beating the 92-cent analyst consensus reported by FactSet. Revenue jumped 11% to $14.15 billion, exceeding analysts’ forecast of $14.05 billion. Cisco’s full-year forecasts also topped analysts’ projections.

Strong demand for Cisco’s wares

Clearly demand remains strong for Cisco’s products. Companies and cloud computing providers are enlarging their networks, partly to handle the explosion of AI software. Cisco says it hasn’t been hurt by US tariffs and doesn’t see a major impact going forward, assuming current policy continues.

“We haven’t seen any customers fundamentally slowing down,” Cisco CEO Chuck Robbins said in the latest earning call. “The AI transition is so important that they’re going to continue to spin until they absolutely have to stop.”

Analysts were impressed with the earnings performance. “We particularly like high order growth for campus offerings, which are the firm’s largest driver,” wrote Morningstar analyst William Kerwin. A campus network is a computer network connecting multiple local area networks in a confined geographical space, such as a college campus. 

To be sure, he thinks Cisco’s stock price bakes in an overly-optimistic view of the AI-related financial impact on the company. But Kerwin is enthusiastic about Cisco’s overall networking portfolio, which is “extensive, highly profitable, and deeply entrenched in customers,” he said. “The combination of networking and security sets Cisco up well for long-term growth and customer retention.”

While the future is never guaranteed, Cisco looks a lot better than it did 25 years ago.

The author owns Cisco shares.