Artificial intelligence will be a key factor driving the company’s fundamentals higher, one researcher believes.
An analyst recommendation upgrade was the news propelling the stock of Cisco Systems (CSCO 4.25%) skyward on Wednesday. Investors took the bullish new rating to heart, pushing into shares of the veteran computer networking company and sending them more than 4% higher in price. That performance was much better than the 0.5% rise of the S&P 500 index that day.
Citi becomes bullish
Well before market open, Atif Malik of Citigroup changed his Cisco stock recommendation to buy from the previous neutral. In doing so he also pulled the lever on a significant price target increase, raising his to $62 per share from the preceding $52.
Malik sees vast scope for improvement in the high-demand field of artificial intelligence (AI), particularly considering that it’s only responsible for around 2% of Cisco’s overall revenue. As the company specializes in the ethernet switches that facilitate computer networks, it stands to benefit handsomely from the need to connect graphics processing units (GPUs) powerful enough to traffic AI functionalities to other hardware.
The analyst also pointed to Cisco stock’s low valuations compared to other peers in the networking segment.
“With more AI coming, we are incrementally more constructive on the group and expect continued investor rotation out of semis/hardware into networking equipment to benefit group valuation,” Malik wrote in his latest Cisco research note.
Sleeper stock?
In many ways, Cisco is seen as a stodgy tech company peddling ho-hum technology that was only exciting years (or even decades) ago. So there’s definitely a sleeper quality to the stock. Malik might very well be onto something here.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.
