Cisco: Why Analysts Are Targeting 35% Gains by Christmas

Key Points

• Cisco shares have rallied 30% since August, nearing multi-year highs.
• Analysts are calling for even more gains in the short term. 
• The stock's RSI raises some short-term caution, but the longer-term potential remains strong.

Shares of Cisco Systems Inc NASDAQ: CSCO have been making headlines for all the right reasons with their multi-month rally, which has added 30% since August. Though still short of its pandemic-era highs, the tech titan is continuing to gain momentum, and expectations are building accordingly as we head into the final few months of the year.

With a market cap of $225 billion, the San Jose-based company is a well-known leader in networking and AI-driven solutions. So, why should investors consider jumping in now? Well, there are several reasons to consider—let's take a closer look.

Cisco's Strong Momentum

Starting with the company's fundamental performance, it has to be acknowledged that Cisco's performance in this department has been impressive. The company continued its long track record of smashing expectations in its most recent earnings report from August, easily topping analyst forecasts. 

This was the starting point for the current rally, and the strong showing has fueled optimism heading into November's earnings report, with many expecting another positive surprise. As CEO Chuck Robbins summed up in August, "We saw steady customer demand with order growth across the business as customers rely on Cisco to connect and protect all aspects of their organizations in the era of AI." Based on how the stock is trading right now, it's clear Wall Street expects this demand to underpin further gains into 2025. 

Bullish Analyst Updates Signal Confidence in Cisco’s Upside Potential

Based on all this, it's perhaps no surprise that analysts are exceedingly confident in Cisco's upside potential. This month alone, the teams at Citigroup and Tigress Financial both rated Cisco a Buy. These updates were built on sentiments similar to those of Evercore ISI towards the end of last month. 

There's a solid consensus among all the teams that Cisco's shift to AI-driven networks is paying off, and the expectation is that this will play a key role in reversing the recent revenue decline. The company recently reiterated expectations for $1 billion of AI-related orders to land in 2025, reflecting a solid picture of market demand for Cisco's product offering.

Considering this, the updated price targets from the teams covering Cisco are worth paying attention to. Tigress's $78 price target, in particular, should make investors sit up. The stock closed below $57 on Friday evening, so even with the current 30% rally under its belt, that's pointing to an additional targeted upside of some 35%. 

It's also worth noting the broader macro tailwinds that are in place and supporting Cisco's rally. The Fed has started to cut rates, fuelling a risk-on sentiment for stocks, and the broader equity market, as seen through the benchmark S&P 500 index, is at an all-time high. 

Potential Concerns: Cisco’s RSI Hits 82, Signaling Overbought Conditions

While Cisco's long-term outlook is promising, some short-term concerns are worth noting. The ongoing rally has pushed the stock's relative strength index (RSI) to 82. The RSI is a popular technical indicator that measures momentum, and any reading above 70 suggests the stock is getting frothy and may be due for a pullback in the near term.

Investors should be cautious of any short-term volatility in Cisco shares. Still, based on the bull's argument, any dip should be treated like a buying opportunity, as a high RSI also reflects strong underlying demand.

Cisco’s Fundamental Momentum Signals More Gains Ahead

For those of us on the sidelines, as we head into the last couple of weeks of the year, Cisco is a stock worth placing high on your watchlist. The long-term outlook remains solidly bullish with its growing leadership position in AI networking, bullish analyst updates, and fundamental momentum. It's fair for investors to expect the stock to continue performing well, especially if the company can once again beat expectations for November's earnings report.