Cisco Systems CSCO is increasingly positioning Security as a strategic growth pillar tied directly to the AI infrastructure cycle, enterprise resiliency spending and the growing need for observability-driven cyber defense. While Security revenues were flat year over year in the third quarter of fiscal 2026 at $2 billion, the broader indicators suggest security is becoming more embedded in Cisco’s AI-era networking architecture. This is expected to accelerate Security revenues over the medium term.
Cisco’s security opportunity has increased with the integration of Splunk into its broader AI and networking ecosystem. Cisco highlighted that AI workloads will create “a new level of inferencing demand on secure networking,” where security is embedded deeply into network infrastructure. Cisco believes agentic AI traffic will dramatically increase enterprise network complexity, requiring integrated switching, security, silicon and observability solutions.
Cisco’s recent Splunk research report reinforces why this opportunity is significant. According to the study, downtime now costs Global 2000 companies roughly $600 billion annually, up 50% in just two years, while the average downtime incident costs organizations nearly $95 million annually in lost revenues. The report also found that downtime costs average roughly $15,000 per minute and often lead to customer churn, regulatory penalties, ransomware exposure and reputational damage.
Cisco’s strategy of combining networking infrastructure, security software, AI-driven observability, and automation capabilities through Splunk well positions the company to benefit from this environment. Cisco is effectively pitching an “AI-era resilience platform” rather than standalone networking hardware. Cisco’s product positioning around Splunk, Security Cloud, XDR, zero-trust capabilities, and AI-enabled observability is expected to boost its segment top-line growth. Cisco took multiple security-focused initiatives in the fiscal third quarter, including participation in Project Glasswing for AI vulnerability testing, development of “DefenseClaw” to protect AI agents, expanded zero-trust capabilities, and planned acquisitions of Astrix and Galileo for AI-agent security.
This indicates Cisco is shifting Security toward next-generation AI protection rather than traditional firewall-centric security. The company is attempting to build a differentiated position where security is integrated into AI networking fabrics and observability systems. As AI networking deployments scale, Cisco has the opportunity to attach security subscriptions, observability software, and AI protection services to these infrastructure deployments. This could improve the recurring software revenue mix over time.
CSCO Faces Tough Competition in the Security Domain
Cisco is facing stiff competition from Palo Alto Networks PANW and Fortinet FTNT in the firewall and networking domain. Both Palo Alto Networks and Fortinet are positioning themselves not just as firewall vendors, but as integrated AI-era security platforms.
Palo Alto Networks is competing aggressively through what it calls a “platformization” strategy, convincing enterprises to consolidate multiple security vendors into one integrated architecture. PANW argues that fragmented security stacks are ineffective in the AI era because AI-driven attacks require real-time coordinated defense across network, cloud, endpoint, browser, and identity layers. Fortinet competes with Cisco more directly in networking, firewall appliances, SD-WAN and integrated networking-security infrastructure. Fortinet benefits from the convergence of networking and security in the AI era.
CSCO Share Price Performance, Valuation & Estimates
Cisco shares have appreciated 55.4% year to date, outperforming the broader Zacks Computer and Technology sector’s return of 19.2%.
CSCO’s Price Performance
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The CSCO stock is trading at a premium, with a forward 12-month price/earnings of 26.68X compared with the broader sector’s 25.96X. Cisco has a Value Score of F.
CSCO Stock is Overvalued
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The Zacks Consensus Estimate for fiscal 2026 earnings is currently pegged at $4.20 per share, up 3 cents over the past 30 days, suggesting 10.2% growth from the figure reported in fiscal 2025.
Cisco Systems, Inc. Price and Consensus
Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote
Cisco currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).