Why Cisco's AI News Didn't Inspire The Market – Forbes

Cisco executives were working overtime this week to make the case that Cisco shares are an AI play for investors. Unfortunately, it didn’t work.
At its Cisco Live annual conference in Las Vegas, Cisco announced a $1 billion AI investment fund with initial investments in Cohere, Mistral AI, and Scale AI. The company also announced a technology partnership with Nvidia to launch a new line of AI infrastructure, the Nexus HyperFabric AI Cluster.
On the surface of it, it felt like Cisco was playing for attention in the overheated AI space. At best, these were public relations and investor relations moves designed to draw more investors into Cisco stock on the back of an AI bubble.
Here’s the problem: It didn’t work. Cisco’s shares barely budged during its biggest marketing event of the year. The Cisco board of directors and Cisco investors may have noticed this.
Cisco shares have barely budged in five years.
This is starting to become a long-term problem for Cisco investors, with the shares having underperformed in recent years. As analysis firm Trefis recently pointed out, returns for the stock were 42% in 2021, -25% in 2022, and 6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023, indicating that Cisco has been underperforming the S&P 500 during a technology bull market.
The investment announcement was reminiscent of investments that Cisco made in cloud services that were later abandoned, as one industry source pointed out to me today. For example, one investment known as Intercloud, announced in 2014 and also coincidentally amounting to $1 billion, went nowhere.
Cisco made the AI fund announcement as part of its package of hoopla at its annual Cisco Live event, held this week in Las Vegas. Putting AI front-and-center was of course a priority: You can’t go to a technology conference these days without being hit on the head with the AI sledgehammer.
It feels like Cisco is reaching for an AI story. The problem with the funding announcement is that at $1 billion, an AI fund is not enough to move the needle. The market capitalization of the company is $186 billion, so an investment of $1 billion is small potatoes compared with NVIDIA selling $60 billion in chips in a quarter.
The reason the stock has yet to respond is that Cisco has yet to prove it’s a major player in AI. The investors want product or revenue growth—or at least the potential for product and revenue growth. If you are a technology company, investors value you on the value of your product franchise and growth. Cisco’s product revenue growth has been in the low single-digits for five years.
The major AI infrastructure players—companies such as Microsoft, Nvidia, and Super Micro—have shown direct linkage between AI and revenue, putting themselves in the position of AI leaders. They are moving billions of dollars of hardware, software, and services linked to AI technology. Cisco hasn’t demonstrated that it’s doing that yet. It will have to that with Splunk and Nexus HyperFabric AI. Investors so far are in wait-and-see mode.
Cisco also held an analyst day this week to transmit its AI story. Cisco told analysts this week that it has $800 million in AI orders for Silicon one, Ethernet switches, and optical products.
Some Wall St. analysts remain optimistic that Cisco can get its AI moves together, with the assets it holds in its optics and Silicon One hardware platform.
“We think it is an advantage for Cisco that it can sell the individual Hyper Scalers whatever they want, including Cisco One chips, grey box co-designed Switches, and Cisco branded Switches,” wrote Michael Genovese, an analyst with Rosenblatt Securities, after the Cisco analyst day.
At Cisco Live, the company had other announcements, such as better integration between its AppDynamics products and newly acquired Splunk, which is a smart move that benefits customers. But most of the emphasis was on AI.
Cisco CEO Chuck Robbins’ jumped right in to AI in his keynote at Tuesday’s opening day keynote. “There’s this little thing called AI,” he said. “I was not allowed to get on stage and not say AI… what is it seven times?”
Robbins made a strong statement about Cisco and AI. Maybe there’s a chance that unlike cloud, Cisco can play a major role in the next great technology boom. The AI fund will not only give it equity positions, but it will also earn Cisco credibility and knowledge.
“All the C-suite executives used to ask why aren’t we in the cloud … “ said Robbins in the keynote. “Everybody’s going to do that on steroids on AI. Everybody’s going to want to know, what’s our plan? We want to do great things with AI and we want to do it in a responsible way.”
As part of the investment announcement, Cisco announced the $1 billion global AI investment would be used to “bolster the startup ecosystem and expand the development of secure and reliable AI solutions.” Cisco has already committed nearly $200M of the $1B investment fund to date.
The committed investments in the new AI fund include:

It’s a little surprising to see that with many product lines to manage and integrate, Cisco chose to focus on its AI investments. But then again, it’s not surprising. AI is everything right now, especially if you have a publicly traded technology company. You need skin in the game, and you want investors to have a reason to buy your stock.
Cisco leadership wants to broadcast that it’s participating in the latest tech boom. So far, the company has not been perceived as an AI play by investors. In the period since the launch of ChatGPT in November of 2022, Nvidia shares have appreciated 600% and Microsoft shares have appreciated 68%. Cisco shares are only up 11%. Cisco has been left out of the AI party, and it’s trying to buy its way in.
The bottom line: Cisco is working overtime to change the market’s perception of the company’s franchise, but it’s still perceived as an enterprise networking company, despite its efforts to bolster areas such as security, cloud infrastructure, software, and AI.
(Disclosure: the author has no position in Cisco stock.)

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