Cisco Systems (NASDAQ:CSCO) was downgraded to Equal-weight from Overweight by Morgan Stanley on Thursday, with the investment bank also lowering its price target on the networking equipment maker to $120 from $135. The move comes as Cisco stock downgraded by Morgan Stanley reflects concerns that a strong share-price run has already captured much of the available upside ahead of the company’s fiscal first-quarter results.
Analyst Meta Marshall pointed out that Cisco shares have climbed 43% over the past 12 months, far outpacing the S&P 500’s 14% gain over the same period. That outperformance has pushed the stock’s valuation to roughly 19 times forward earnings, putting it in line with the broader index. According to Marshall, the re-rating driven by artificial intelligence enthusiasm is now largely baked into the price.
Pull-Forward Concerns and Margin Pressure
Beyond valuation, Morgan Stanley highlighted a practice known as pull-forward, where customers place orders early to get ahead of planned price increases. Such behavior can artificially boost near-term sales and make current demand look stronger than it truly is. The bank flagged this as a risk that could distort Cisco’s upcoming results.
The analyst also noted that a growing share of lower-margin hardware sold to hyperscale cloud providers is weighing on gross margins. As Cisco’s AI-related business expands, the mix shift toward these large customers is expected to create headwinds for profitability.
In Marshall’s view, Cisco can still deliver share-price gains through earnings growth, but the combination of elevated expectations and margin pressure from the AI business leaves a narrower path to further upside. The analyst wrote that the risk/reward setup now appears more balanced at current levels.
Earnings Bar Rises for Networking Peers
Morgan Stanley also pointed to recent market reactions to quarterly reports from Fortinet and F5, which the analyst said underscore a higher bar for networking and cybersecurity stocks. Investors have become less forgiving of results that fail to clear elevated expectations, a dynamic that could apply to Cisco as well.
Despite the downgrade, Morgan Stanley remains constructive on Cisco’s fundamentals. The bank continues to forecast several years of double-digit growth, driven largely by cloud customers. However, it cautioned that once Cisco laps its pricing increases in fiscal 2028, growth will depend increasingly on AI revenue.
The note encapsulates a tension facing Cisco: its core business remains healthy, but the stock’s rapid ascent has raised the stakes for delivering on high expectations. With the fiscal first-quarter report approaching, investors will be watching closely for signs of pull-forward demand and margin trends that could determine whether the shares can sustain their recent momentum.