Investing.com -- HSBC has upgraded Cisco Systems to Buy and raised its price target to $137 from $77, arguing that a stronger-than-expected AI infrastructure demand cycle has fundamentally reset the networking giant's growth profile.

Analyst Stephen Bersey told investors in a note that Cisco's fiscal third-quarter results confirmed a structural shift, with AI infrastructure orders reaching $1.9 billion in the quarter, up from $600 million a year earlier, lifting the year-to-date total to $5.3 billion.

Management raised its fiscal 2026 AI infrastructure orders target to approximately $9 billion from $5 billion, implying a substantial fourth-quarter step-up, and lifted full-year AI revenue guidance to approximately $4 billion from $3 billion.

For fiscal 2027, management guided for AI revenue of at least $6 billion, implying roughly 50% year-over-year growth and total company revenue growth of around 9%.

HSBC said Cisco's Silicon One chips and Acacia optics drove the AI outperformance, backed by multiple hyperscaler design wins. Total revenue grew 12% year-over-year to $15.84 billion, approximately 2% above consensus, while non-GAAP earnings per share of $1.06 beat estimates by 2.5%.

The bank now believes "AI revenue is having a larger financial impact than we had expected," and identified three structural growth drivers: hyperscaler AI buildouts, enterprise AI networking upgrades and campus modernization driven by rising traffic and security requirements.

HSBC raised its fiscal 2026 to 2029 non-GAAP earnings per share compound annual growth rate estimate to 13.6% from 9.8%, applying a higher 29 times price-to-earnings multiple to reflect Cisco's transition from a “low-growth networking company to a structural AI infrastructure thesis.”