Recalibrating Expectations: Cisco’s Downgrade to Neutral Despite Upbeat AI and Earnings Momentum

Cisco Systems, Inc. (CSCO)has been a foundational player in global networking, cybersecurity, and communications infrastructure for decades. As the world’s largest networking hardware and software provider, Cisco is synonymous with the backbone of the internet, enterprise connectivity, and—more recently—AI-driven digital transformation. The company’s broad business model, spanning hardware, software subscriptions, and security solutions, makes its stock a bellwether for both tech and enterprise IT spending cycles.

Today’s notable development is a rating downgrade from New Street, shifting Cisco from ‘Buy’ to ‘Neutral’ while setting a price target of $70. This is a subtle but important signal for sophisticated investors: the analyst expects only a moderate upside, even as Cisco’s narrative is increasingly tied to AI momentum, strong fiscal results, and robust capital returns. Analyst calls like this are critical for investors, often serving as an early warning system when optimism may be peaking or when valuations start to outpace fundamentals.

Key Takeaways:

• Potential Upside: The new $70 price target implies a 10.4% upside from current prices ($63.38), despite the downgrade.

• Stock Price Moves: Cisco recently hit a 52-week high of $66.50, with gains driven by AI, strong Q3 earnings, and positive sector tailwinds. Shares are slightly off their highs, down 1.37% on the day of the downgrade.

• Recent News Impact: Q3 earnings beat expectations, with revenue and security/networking sales rising. Coverage is bullish on AI’s contribution to future growth.

• Analyst Confidence: New Street is known for its rigorous, data-driven research and critical, often contrarian calls—giving added weight to its more cautious view despite Cisco’s recent momentum.

• Valuation and Sentiment: Cisco’s technicals show overbought signals (RSI above 80), indicating stretched valuations even amid strong capital returns and upbeat guidance.

Analyst Downgrade in Context: New Street’s Contrarian Signal

New Street’s Reputation and Rationale

New Street, a boutique research firm with a reputation for deep-dive, independent coverage of tech and telecom giants, is not shy about making contrarian calls. While its influence is not as broad as some bulge-bracket banks, its reports are closely read by institutional investors seeking differentiated, data-backed perspectives. The firm’s shift from ‘Buy’ to ‘Neutral’—despite a price target above current levels—reflects a nuanced view: Cisco’s story is strong, but perhaps too many positives are now priced in after a sustained rally.

“For numerous reasons, Cisco Systems’ stock price will reach new highs in 2025 and continue to trend higher into 2026. Those include outperformance in FQ3, guidance for FQ4, AI, the analysts, and capital returns.” — MarketBeat, May 16, 2025

Unlike momentum-driven upgrades, a downgrade in this context warns that investors should temper enthusiasm, especially as technical indicators point to overextension.

The New Price Target: A Measured View

The new $70 price target is only modestly above recent highs. With the stock at $63.38, this represents a 10.4% potential upside—a figure that would be compelling in isolation, but less so given Cisco’s recent surge (+35% off its 52-week low of $44.50) and overbought technical readings (RSI above 80, well above the 70 threshold typically seen as overbought).

Cisco’s Fundamentals: Strengths and Caution Signs

Recent Financial Performance

Cisco’s Q3 2025 results were robust:

• Revenue: Up year-over-year, with security and networking units as standouts.

• Earnings: Earnings beat Wall Street expectations, reinforcing the narrative that Cisco’s software and recurring-revenue streams are gaining traction.

• Capital Returns: Aggressive buybacks and dividend growth continue, supporting shareholder value.

Yet, with the stock up more than 40% from its 12-month lows, much of this fundamental strength appears to be priced in. Average daily trading volumes remain robust (over 20 million shares), but the sentiment ratio (up days vs. down days) is just 0.57—signaling that gains have been somewhat lumpy and not uniformly distributed.

Technical and Sentiment Analysis

• RSI: Recent levels over 80 suggest the stock is technically overbought, raising the likelihood of near-term consolidation or a pullback.

• Moving Averages: The price remains well above its 20-day EMA ($59.98) and SMA ($58.87), reinforcing the stretched technical picture.

• Volatility: Average daily volatility is just under 1%—modest for a tech blue chip, but potentially masking latent risk should sentiment shift.

AI, Earnings, and Sector Tailwinds: What’s Priced In?

AI-Fueled Narrative

Recent news cycles have focused heavily on Cisco’s positioning in artificial intelligence and advanced networking. The company’s AI-powered networking hardware and security offerings are increasingly seen as key growth engines. Earnings commentary has spotlighted management’s optimism for both near-term and multiyear growth driven by digital transformation, cloud, and AI adoption.

Earnings Beats and Analyst Chatter

MarketBeat and Zacks both highlighted that:

• Cisco’s Q3 earnings beat was driven by strong demand for security and AI-driven networking solutions.

• Management raised guidance for Q4, suggesting more upside is possible if execution remains strong.

However, the New Street downgrade suggests that, in the short term, expectations may be running ahead of fundamentals. The firm’s ‘Neutral’ rating signals that while upside exists, risk-reward is no longer skewed as favorably as it was at lower valuations.

Potential Upside: Parsing the 10% Gain

Despite the downgrade, the $70 target implies a potential gain of 10.4% from current levels. For a mega-cap like Cisco, such an upside is nontrivial. However, when viewed against recent volatility, technical overextension, and the potential for mean reversion, this upside must be weighed carefully.

The key question is whether this upside adequately compensates for the risk of a pullback after a historic run.

• If Cisco’s AI and security bets continue to exceed expectations, shares could move toward the target.

• If market sentiment cools, especially with overbought signals flashing, a consolidation or dip is plausible.

What’s Next? Navigating the Crosscurrents

Positioning Amid Uncertainty

Cisco’s downgrade does not negate its long-term strengths. The company is still well-capitalized, shareholder-friendly, and exposed to secular tech growth. But after a remarkable run, investors should expect increased volatility and potentially less upside in the near term.

Key watchpoints going forward:

• Execution on AI: Are new product launches and customer wins meeting or beating guidance?

• Sector Sentiment: Will tech sector momentum persist, or is a rotation brewing?

• Earnings Follow-Through: Can Cisco deliver on its bullish Q4 guidance?

• Technical Readings: Will the stock work off its overbought condition, or is a correction looming?

Conclusion: A Prudent Pause in an Otherwise Bullish Story

New Street’s downgrade to ‘Neutral’ injects a note of caution at a time of heightened optimism. With a still-attractive 10% upside to the new $70 price target, the call is not bearish—but it is a warning that further gains may come with more risk and less certainty. For investors, this is a signal to scrutinize both valuation and narrative, ensuring that risk management keeps pace with opportunity as Cisco rides the AI and digital transformation wave.