Morgan Stanley Downgrades Cisco to Equal-weight on Valuation and AI Margin Concerns

Morgan Stanley analyst Meta Marshall downgraded CSCO Cisco Systems to Equal-weight from Overweight on November 5 and lowered the price target to $120 from $135. The note's core argument is valuation: after a 43% gain over the past 12 months, against 14% for the S&P 500, the firm sees "merit in scaling back exposure," with the stock now trading in line with the index at about 19 times forward earnings.

Two business concerns sit behind the call. One is pull-forward risk, as customers may have placed orders early ahead of price increases. The other is margin mix: a growing share of lower-margin AI hardware sold to hyperscalers, which the note says leaves "less room for upside". Cisco's gross margin was 66.3% in the fourth quarter of fiscal 2026, down from 68.4% a year earlier. Morgan Stanley stressed it remains constructive on Cisco's fundamentals and described the risk/reward as more balanced at current levels, according to Investing.com.

Cisco closed down 7.6% at $95.72, from a prior close of $103.61, according to SentiSense market data, after falling about 3% before the open. The downgrade landed on a broad tech rout, though: the Nasdaq Composite fell more than 5% as the post-midterm rally reversed, so the call's own share of Cisco's drop cannot be isolated. Networking peers fell harder, with Ciena down about 15% and ANET Arista Networks down about 10%, but the coverage ties those moves to their exposure to AI infrastructure spending rather than to the Cisco downgrade.

What to watch: Cisco reports fiscal first-quarter results on November 12, the first read on whether AI revenue can grow without further gross-margin erosion. The company booked $9.3 billion of AI infrastructure orders in fiscal 2026 and guides fiscal 2027 revenue to $72.2 billion to $73.4 billion.