Shares of Cisco Systems surged approximately 4% before the market opened on Thursday following an optimistic fourth-quarter outlook, indicating a continued improvement in demand for networking equipment and the anticipated benefits from its $28 billion acquisition of cybersecurity firm Splunk.
As the world’s largest networking equipment manufacturer (CSCO.O), Cisco had faced challenges due to subdued demand, exacerbated by customers adjusting their inventory levels after a period of frenzied purchasing during the pandemic, alongside persistent supply chain disruptions.
Morgan Stanley analysts expressed positivity regarding the company’s order numbers, viewing them favorably after several quarters of significant inventory digestion headwinds.
Cisco’s fourth-quarter revenue forecast of $13.4 billion to $13.6 billion exceeded analysts’ estimates of $13.23 billion, as reported by LSEG data. CEO Charles Robbins noted during a post-earnings call that the majority of customer inventory installations are anticipated to be completed by the end of the fiscal year in July.
Excluding the impact of the Splunk acquisition, product orders remained flat in the third quarter, a marked improvement from the 12% decline in the previous quarter.
If premarket gains were sustained, Cisco stood to add nearly $8 billion to its market value on Thursday.
The company is poised to benefit from the substantial investments made by U.S. technology giants such as Microsoft (MSFT.O) and Meta Platforms (META.O) in data centers to support applications like ChatGPT, which demand significant computing power.
Cisco highlighted that three of the top four cloud-computing companies were deploying its ethernet technology. Additionally, it reaffirmed its target of securing $1 billion worth of AI product orders by fiscal 2025.
Furthermore, Cisco revised its revenue forecast for 2024 to a range of $53.6 billion to $53.8 billion, up from its previous expectations of $51.5 billion to $52.5 billion.
