10 Hidden AI Stocks to Buy Now

6. Cisco Systems Inc. (NASDAQ:CSCO)

Number of Hedge Fund Holders: 61

Cisco Systems Inc. (NASDAQ:CSCO) is a multinational technology conglomerate in networking and IT solutions and uses AI to optimize network performance, improve security, and automate IT operations.

It offers a range of networking solutions, including IoT, security, videoconferencing, and energy management. Key products include Webex, OpenDNS, and the Silicon One chip, which is designed for high-capacity data handling. 61 hedge funds were long in the company in Q2. Harris Associates holds 10.4 million shares of the company, valued at $496,382,254, making it the company’s largest shareholder.

In August, it announced restructuring for 2025, including a 7% workforce reduction and $1 billion in cost savings. This will allow the company to shift focus to high-growth areas like AI and cloud networking, as legacy hardware businesses stagnate, boosting operating margins by over 220 basis points.

While AI is not yet a major revenue driver, contributing less than 2% next year, its focus on growth markets like AI and cloud networking could accelerate overall revenue growth in the future.

In Q2 2024, there was a 10.27% revenue decline year-over-year. Still, Cisco Systems Inc. (NASDAQ:CSCO) is well-positioned for growth due to strong demand for its networking products, driven by cloud computing and cybersecurity.

The company’s transition to subscription-based models enhances its long-term growth potential. The recent $28 billion acquisition of Splunk will enhance its cybersecurity capabilities and strengthen its position in data security and analytics.

Oakmark Fund made the following comment about Cisco Systems, Inc. (NASDAQ:CSCO) in its Q3 2023 investor letter:

“Cisco Systems, Inc. (NASDAQ:CSCO) is the leading networking solutions company. Networking equipment becomes more important as businesses modernize their IT infrastructure, and Cisco is well positioned to capture this demand given its broad portfolio and highly effective go-to-market strategy. Cisco is transitioning away from selling mainly transactional hardware and toward selling more software and subscriptions. This shift is expected to accelerate revenue growth, improve operating margins and build recurring revenue. Despite these notable business improvements, Cisco still trades near a trough valuation relative to the S&P 500 Index. More recently, Cisco announced its intention to acquire Splunk, a leader in security and observability, adding to its already strong position in the increasingly important security market. At a low-teens multiple of our estimate of normalized earnings, Cisco is trading comfortably below our estimate of intrinsic value.”