Morgan Stanley cuts Cisco stock rating on valuation concerns

Morgan Stanley has reduced its rating on Cisco Systems Inc. (CSCO) stock to Equalweight from Overweight and lowered its price target to $120 from $135. The investment bank downgraded the stock on valuation concerns, noting Cisco's current price at approximately 19x forward earnings, which is in line with the S&P 500. Morgan Stanley's investment thesis revolved around the stock's attractive valuation, which had previously been seen as a 7x+ discount to the S&P 500.

However, recent improvements in demand and the emergence of artificial intelligence opportunities have reinforced the firm's original thesis. Despite these factors, the firm sees limited upside potential for Cisco's stock in the near term, mainly due to strong expectations and gross margin headwinds from the AI business. Analysts are optimistic about Cisco's long-term prospects, with several firms raising their price targets to reflect the company's robust fiscal results and growth outlook in networking infrastructure.