Cisco Systems (CSCO) has quietly become one of the biggest winners of the artificial intelligence buildout in 2026.
The stock is up about 46% year to date, closing recently near $111 a share.
Most of that attention has gone to Cisco’s order numbers and its role in wiring together AI data centers. But a new note from Morgan Stanley points to something less obvious that could keep the run going.
The bank hosted several Cisco investor sessions in mid-August and came away with one clear message: Cisco has an edge in getting parts that many of its rivals do not have.
That advantage matters because a shortage of key components is holding back the entire networking industry right now.
How Cisco’s TSMC relationship became a supply advantage
Right now, memory chips, pump lasers, and the most advanced silicon are all in short supply across the tech industry.
Pump lasers are the components that power the optical links moving data between servers, and leading-edge silicon means the newest, fastest chips.
When parts are scarce, the companies that can secure them win business the others have to turn away.
Morgan Stanley says Cisco is navigating this better than peers because of three factors.
Cisco’s procurement edge, according to Morgan Stanley
- A strong balance sheet that lets it commit cash upfront
- Larger purchase commitments than smaller rivals can make
- A direct relationship with Taiwan Semiconductor Manufacturing (TSMC), the world’s biggest chipmaker
Cisco’s chip volumes with TSMC are expected to rise roughly tenfold in fiscal 2027, according to a Morgan Stanley note shared with TheStreet.
Cisco also gives TSMC something in return by diversifying its customer base, which offers both sides a reason to stay close.
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Why the Catalyst refresh cycle is still in early stages
Beyond supply, Morgan Stanley sees room to grow in Cisco’s core business of selling switches to offices and campuses.
The Catalyst line is Cisco’s family of network switches used inside buildings and workplaces.
Only about 7% of the older Catalyst 4000 and 6000 base has been upgraded so far, Seeking Alpha reported.
That leaves a large pool of aging equipment that customers will need to replace.
Two deadlines make this hard to avoid:
- The Catalyst 4000 reaches end-of-life by the end of 2026.
- The Catalyst 6000 follows by the end of 2027.
When a product hits end-of-life, the maker stops supporting it, which pushes buyers toward newer models.
Software data from Cisco’s Meraki hardware also shows customers are installing gear quickly rather than letting it sit in storage, a sign that demand is real and not just backlog.
The next growth area: connecting AI across data centers
The most forward-looking part of the report deals with something called scale-across.
Power limits are forcing companies to spread their AI computing across several data centers instead of one giant site.
Scale-across is the technology that links those separate GPU clusters, sometimes up to 100 kilometers apart, so they work as one system.
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Cisco is positioned as a full supplier here rather than a single-product vendor, with exposure across routing, transport systems, and Acacia optical gear.
The company already has three design wins for its P200 routing chip, though wider deployment is still ahead.
Cisco’s management expects this activity to pick up as next-generation systems begin shipping in the first half of 2027.
What Morgan Stanley’s $135 target means for Cisco investors
Morgan Stanley kept its Overweight rating and $135 price target on Cisco, according to the firm’s research note authored by analyst Meta Marshall.
Marshall is a managing director who leads networking coverage at Morgan Stanley; TipRanks measures their success rate at 53% across a coverage list of 46 stocks.
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The $135 target sits about 22% above the recent share price and is based on 26 times the bank’s projected calendar 2027 earnings.
The rating was reaffirmed after Cisco’s fiscal fourth-quarter results, which beat expectations on both earnings and revenue.
Cisco reported record quarterly revenue of about $17.3 billion, up roughly 18% from a year earlier.
The margin trade-off investors should watch
Cisco’s gross margin faces pressure as more of its business shifts toward hyperscalers, the large cloud companies that buy hardware but fewer high-margin software services.
Gross margin is the profit left after subtracting the cost of making a product, and hyperscaler sales tend to carry lower margins.
Cisco’s management still views roughly 64% as a reasonable baseline and says it will not chase low-margin deals just to grow.
Future help could come from Silicon One, Cisco’s in-house chip design, which the company plans to mix into its campus switches to lift margins over time.
Security is another area the report calls underappreciated, with healthy demand for refreshed firewalls and Cisco’s newer Hypershield product.
How Cisco stock has performed against the market
Cisco’s roughly 46% year-to-date gain has run well ahead of the S&P 500, which has posted a more modest increase over the same stretch.
That gap shows how strongly investors have rewarded companies tied to AI infrastructure this year.
Still, the stock has cooled since its June high near $129, and it slipped after the fourth-quarter report, even with the earnings beat.
Some analysts, including those at Piper Sandler, described Cisco’s forward guidance as conservative, which fueled the pullback.
That leaves Cisco in a familiar spot for AI winners: strong results, high expectations, and a share price that reacts to both.
What still has to happen for the bull case to hold
Morgan Stanley’s view rests on several things going right over the next year.
What needs to play out for Cisco to reach $135
- The campus refresh keeps converting aging Catalyst gear into new sales.
- Scale-across deployments broaden beyond the current three P200 wins.
- Security growth accelerates as Splunk cross-selling matures.
- Gross margins hold near the 64% baseline despite the hyperscaler mix.
None of these is guaranteed, and the parts shortage that helps Cisco today could also cap its growth if the tightness worsens.
For investors, the takeaway is straightforward. Cisco is no longer just a slow-moving dividend payer.
It has become a central supplier in the AI buildout, and Morgan Stanley believes its supply advantage gives it a way to keep winning orders that rivals simply cannot fill right now.
The bigger question for 2027 is whether Cisco can turn that early edge into the durable, multi-year growth the bank is betting on.
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