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Today Cisco trades at a 15x P/E multiple and 52-week low. The brand is well recognized with an established customer base in the networking equipment industry. And this week they made a billion dollar announcement at Cisco Live.

Cisco’s $1B Fund Announcement

Cisco Investments, the company’s venture arm, is launching a $1b A.I. investment fund. This coincides with new investments into Cohere, Mistral AI and Scale AI. 20% of the fund has already been deployed.

Given the company’s rich history in M&A, it’s very likely that one of these strategic investments will become an acquisition target. But it’s hard to guess which at the moment. Cisco still needs to deploy $800m while still integrating their $28b Splunk deal from last year.

Not much downside with this call option

So what are the potential downsides of the stock? The core networking market might be approaching saturation, making significant future growth challenging. Business spending on IT infrastructure has slowed down for the past few years. It peaked during the pandemic.

Will $1b be enough to move the needle? Not likely for Cisco. The company has $19b in cash, $55b in revenue and a $204b market cap. If anything, this tiny fund is a cheap call option to capture a piece of a new tech wave.

Consider the following if you are looking at Cisco

Cisco trades around 10x cash flows with +20% net profit margins, delivering +20% returns on equity. Cisco has a history of paying dividends, which can be an attractive benefit for income-oriented investors.

Today the network giant is hardware-focused but pivoting towards more recurring software revenue. Which offers long-term growth with better margins.Cisco is a real value growth play. It is one of my favorite examples of a great company selling at a good price. And worth looking at if you need a cash flow compounder for your portfolio.