While artificial intelligence continues to dominate discussions within the technology sector, investors looking for attractive AI investment options typically consider Nvidia (NVDA). However, analysts at Melius Research suggest that Cisco (CSCO) is another stock worth watching in the AI landscape.
Nvidia’s prominence in the AI sector is well-established, with the company’s stock having surged over the year due to its graphics-processing units powering AI systems. Nonetheless, the past three months have seen relatively stagnant growth in Nvidia’s shares. This stagnation is attributed to tighter U.S. restrictions on AI chip exports to China, a situation that has raised concerns. Recent reports indicate that Chinese search company Baidu opted to place an AI chip order with Huawei as an alternative to sourcing from Nvidia. Despite these challenges, Melius analyst Ben Reitzes remains optimistic about Nvidia’s future. Reitzes suggests that Nvidia will discover alternative buyers for its chips and anticipates that the company will provide details about redistributing products originally intended for the Chinese market to regions like the Middle East when it reports earnings on November 21.
Furthermore, Reitzes points out the potential for a positive surprise in Nvidia’s software revenue, which could enhance investor confidence in the company’s high valuation. He believes that if Nvidia can demonstrate the ability to sell over a billion dollars in unbundled software and generate more recurring-like revenue from its AI training service, DGX Cloud, it might justify a higher valuation multiple as earnings mature. Reitzes maintains a Buy rating on Nvidia and sets a two-year target price of $730, based on a price-to-earnings multiple of 35 times the company’s projected 2026 earnings. This places Reitzes among the most bullish analysts on Wall Street regarding Nvidia, which has an average target price of $655 from a FactSet survey of 52 analysts.
As of premarket trading on Tuesday, Nvidia’s shares were down 0.7% at $454.51.
In contrast to Nvidia, networking equipment provider Cisco hasn’t been a prominent AI favorite. However, Reitzes believes this might change following Cisco’s announcement of its $28 billion acquisition of cybersecurity and data analytics company, Splunk (SPLK), in September. Reitzes anticipates that Splunk will use extensive log data to develop a Generative AI offering aimed at assisting customers in resolving network issues, making it a long-term catalyst for Cisco. The positive momentum is also boosted by Arista Networks’ (ANET) recent earnings performance, driven in part by demand from AI companies.
Reitzes maintains a Buy rating on Cisco and establishes a two-year target price of $68, based on a price-to-earnings multiple of 14 times the company’s forecasted 2026 earnings.
During premarket trading, Cisco’s shares were down 0.4% at $53.07.
