Cisco Systems' (NASDAQ: CSCO) stock is poised to reach new highs in 2025 and continue its upward trajectory into 2026, driven by several key factors. These include a strong performance in FQ3, positive guidance for FQ4, the influence of AI, favorable analyst ratings, and strategic capital returns. The overarching theme is that AI is bolstering business strength, leading to improved guidance and a high probability of robust performance in F2026. Analysts are responding by raising their price targets, further propelling the market higher. The duration of this AI boost and the analyst upgrade cycle will determine how high Cisco's stock can climb.

Existing markets are showing robust demand, and new partnerships, such as those with Saudi Arabia's HUMAIN, are expected to enhance Cisco's strength, alongside companies like NVIDIA (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Super Micro Computers (NASDAQ: SMCI). Post-release activity has been marked by consistent price target increases, predominantly in the $70-$75 range, suggesting a 15% upside that could lead to a new all-time high. Additional factors supporting Cisco's stock price outlook include expanding coverage and strengthening market sentiment.

Cisco's Q3 results demonstrate solid performance across all segments, geographies, and end markets, largely supported by AI demand. The company reported $14.15 billion in net revenue, an 11.4% year-over-year increase and 65 basis points ahead of consensus estimates. The Americas region showed the strongest growth at 14%, followed by EMEA and APJC with 8% and 9% gains, respectively. Product sales led segmentally with a 15% increase, followed by a 3% increase in services. All end markets experienced growth, particularly in Security, which saw a 54% increase, a positive indicator for cybersecurity firms like Palo Alto Networks. Large clients are also contributing, with web-scale businesses heavily investing in data center builds and the necessary networking infrastructure.

Margin news is also favorable. Although GAAP and adjusted figures show mixed details depending on the comparison, the net result is generally flat compared to the previous year. This resulted in adjusted earnings of $0.96, approximately 200 bps above consensus, and a 9% gain for investors. Crucially, cash flow and free cash flow remain strong, supporting a healthy balance sheet and enabling capital returns. The Q4 and FY targets have been raised to ranges, with analysts' consensus remaining at or below the low ends of these ranges.

Cisco is actively returning capital to shareholders through above-average dividend payouts, a below-average valuation, and substantial share repurchases. The dividend distribution annualizes to roughly 2.7% with shares near $65.50, trading at about 16 times current year earnings. This valuation is approximately half that of leading AI infrastructure names, suggesting significant upside potential. Share repurchases are being executed aggressively, reducing the share count by an average of 1.4% in Q3, with expectations for this pace to continue. The company has $15 billion remaining under its current authorization, sufficient for about 10 quarters at the Q3 rate.

Institutional trends are also providing a tailwind for Cisco's stock price action in 2025, a trend expected to continue. These trends include a return to net buying at the end of 2024 and an acceleration of bullish activity in 2025. With institutions owning nearly 75% of the stock, their continued support is likely given the company's outperformance and positive outlook.

The stock price action following the earnings release was positive, with CSCO stock surging more than 5% to a closing high. Assuming the market follows through on this signal, Cisco's stock price is expected to continue its upward trend in the coming weeks and months. Otherwise, the stock may become range-bound at current levels until later in the year.