Following multiple discussions with management at Cisco (NASDAQ: CSCO), Morgan Stanley has concluded that the technology giant, led by Chuck Robbins, is transitioning into a more sustainable growth trajectory.
Analyst Meta Marshall noted in a report to clients that the refresh rate for installed Catalyst 4K and 6K series equipment stands at roughly 7%, indicating the entire upgrade cycle remains in its very early phase. The Catalyst 4K is slated for end-of-service later this year, while the Catalyst 6K is expected to reach its lifecycle conclusion by the end of 2027.
Marshall added that wireless access points are also due for replacement, and customers with first-generation Catalyst 9K systems may gradually shift toward newer platforms. She also highlighted that the investor relations team pointed to software activation data for shipped Meraki hardware, showing the non-activation rate has dropped to a five-year low. This suggests customers are quickly installing and deploying devices rather than letting them sit in channels or on their own shelves.
Marshall has assigned an "Overweight" rating on Cisco with a price target of $135. Delving deeper, she indicated that while Cisco's supply chain remains tight, the company holds a competitive edge in securing supply thanks to its robust balance sheet, substantial purchase commitments, and direct partnership with TSMC. She anticipates Cisco's wafer volumes at TSMC across 3nm, 5nm, and 7nm process nodes will expand roughly tenfold by fiscal 2027, with 3nm remaining the most constrained node.
In the near term, Marshall noted that 3nm capacity is reserved exclusively for Cisco's G300 chip, which has yet to enter mass production, though management expressed clear expectations for recent design-win projects. The investor relations team also mentioned that Cisco provides value to TSMC through customer diversification, creating strong momentum for deeper collaboration.
Other notable takeaways from the meeting include potential tailwinds for gross margins as fiscal 2027 progresses, despite current pressure. Marshall pointed out that a gross margin level around 64% is viewed as a reasonable baseline, but the current guidance does not incorporate any pricing upside. She also noted that management emphasized no intention to pursue growth through structurally low-margin businesses, and integrating Silicon One technology into the campus switching portfolio, even with a higher hardware mix, should positively contribute to margins over time.
Finally, Marshall stated that the company's security business is an underappreciated growth opportunity, with upside likely to emerge as network modernization efforts broaden. She concluded that demand for next-generation firewalls and Hypershield products remains solid, while Cisco is streamlining its portfolio by retiring older offerings and concentrating investment on new platforms, further boosting operational efficiency.