Cisco stock valuation is drawing attention as Q4 earnings approach. Investors are asking whether Cisco’s strong earnings momentum and AI-driven growth justify its current price or if it is overpriced.
In Q3 2025, Cisco reported impressive results. Revenue rose 11% year-over-year to $14.15 billion, beating expectations. Adjusted earnings per share (EPS) came in at $0.96, higher than the forecasted $0.92. The company’s guidance for Q4 also surprised analysts with revenue expected between $14.5 and $14.7 billion and EPS of $0.96 to $0.98.
The company’s core segments showed strength. Networking revenue grew 8% to $7.07 billion, while security revenue jumped 54% to $2.01 billion, slightly below expectations but still significant. The acquisition of Splunk, now fully integrated, has supported this growth. AI infrastructure orders stood out, reaching $600 million in Q3 and totaling $1.25 billion for the fiscal year. This surpassed the original $1 billion target. Two-thirds of these orders were for systems, highlighting Cisco’s key role in AI training hardware for major cloud providers.
Cisco’s AI ambitions are more than just talk. CEO Chuck Robbins described their AI strategy as “secure, scalable, and seamless.” Partnerships with NVIDIA and initiatives like the Cisco Secure AI Factory position the company as a major player in AI infrastructure. Beyond hardware, Cisco is expanding its software and services, including the Webex AI agent and advancements in quantum networking. The company is also investing globally, such as in Saudi Arabia’s Humain AI company. Collaborations with BlackRock, Microsoft, and xAI underline Cisco’s active role in shaping AI’s future.
Despite these strengths, Cisco’s valuation raises questions. The stock trades at a forward price-to-earnings (P/E) ratio of 17.79, higher than the industry average of 15.36. Its price-to-earnings-growth (PEG) ratio is 3.26, triple the industry average of 1.02. This means investors are paying a premium for expected earnings growth compared to peers like Arista Networks (PEG 1.42) or Hewlett Packard (PEG 1.02). Cisco’s price-to-book ratio of 6.19 is above Hewlett Packard’s 1.14 but much lower than Apple’s 51.70. The high PEG ratio suggests the market expects AI-driven growth to happen quickly enough to justify this premium, but if growth slows, the stock may be overvalued.
Tariffs add pressure. Cisco’s guidance includes U.S. tariffs on steel, aluminum, and goods from China, Canada, and Mexico. The 30% tariff on Chinese imports may reduce profit margins in the near term. The stock has also lagged the broader technology sector, gaining only 2.32% in the past month compared to the sector’s 5.77% gain. This underperformance may reflect doubts about Cisco’s ability to turn AI momentum into sustained revenue and profit growth.
Cisco’s recent results and AI growth are impressive. The company is succeeding in networking, security, and AI infrastructure, with strong partnerships to support its ambitions. However, the premium valuation requires caution. On the bullish side, AI infrastructure orders and collaborations could push revenue growth above 5% in 2025, with AI contributing significantly to margins in 2026. This could justify a lower PEG ratio closer to peers. On the bearish side, slower AI adoption or tariff-related margin pressure could cause a 10–15% correction.
Overall, Cisco is a solid long-term story but not a clear buy at current prices. Investors should watch Q4 earnings closely for signs of accelerating AI revenue and stable margins. If Cisco delivers on its AI plans and the market lowers the PEG premium, the stock could become a valuable portfolio addition. For now, a cautious hold approach is recommended, paying close attention to upcoming results and valuation trends.
