CSCO's Security Growth Accelerates: Can It Outpace DDOG & CRWD?
Cisco Systems CSCO is benefiting from growing enterprise adoption of integrated security and observability solutions as artificial intelligence (AI), distributed applications and increasingly sophisticated cyberattacks expand IT complexity. CSCO is combining networking with security through Secure Access, XDR, Hypershield and AI Defense, while Splunk and ThousandEyes strengthen its observability and network-assurance capabilities. The integrated approach enhances CSCO’s ability to address customers seeking unified visibility and protection across networks, applications, users, and AI agents, while reinforcing its competitive positioning against Datadog DDOG and CrowdStrike CRWD.
Customer adoption is gaining momentum. CSCO’s entire security portfolio, including Splunk, recorded double-digit order growth in the fourth quarter of fiscal 2026. More than 1,500 customers purchased newer offerings such as Secure Access, XDR, Hypershield and AI Defense during the quarter, taking total net new customers since launch to more than 6,400. Firewall orders increased more than 30% year over year, while management highlighted that customers are increasingly seeking unified protection across users, applications and AI agents.
CSCO is also broadening its AI-driven operations capabilities. In the fourth quarter of fiscal 2026, nearly 4,500 enterprises had signed up for Cisco Cloud Control, while Resilient Infrastructure Services, powered by Cisco IQ, had more than 8,600 customers. CSCO also launched Antares, a family of open-weight small language models designed to identify known code vulnerabilities.
The momentum is beginning to support financial growth. In the fourth quarter of fiscal 2026, Security revenues rose 14% year over year to $2.23 billion, while Observability revenues increased 6% to $275 million. For fiscal 2026, Security revenues grew 2% to $8.23 billion, while Observability revenues increased 4% to $1.10 billion. Observability growth was driven by network assurance, partly offset by weakness in CSCO’s observability-suite offerings.
CSCO Faces Tough Competition
Datadog is expanding from traditional cloud observability into AI-focused monitoring and security. More than 750 AI customers use DDOG, including all 10 top AI leaders. Its portfolio includes GPU Monitoring, Agent Observability, Agent Console, Data Observability and AI Guard. Datadog is also pushing deeper into security through AI Guard and Bits Security Analyst, which can operate with non-Datadog SIEM platforms. In the second quarter of fiscal 2026, platform adoption continued to deepen, with 58% of customers using four or more products and 37% using six or more products.
CrowdStrike is challenging CSCO through the continued expansion of its Falcon platform. The company reported next-generation SIEM annual recurring revenues (ARR) of more than $695 million, cloud security ARR above $905 million and identity ARR exceeding $585 million in the second quarter of fiscal 2027. Falcon Flex ARR surpassed $2.29 billion, up 101% year over year. CRWD is also seeing deeper platform consolidation, with 51% of subscription customers using six modules, 35% using seven and 26% using eight or more. This growing adoption across SIEM, endpoint, cloud, identity and AI security is increasing competitive pressure on CSCO’s integrated security and observability strategy.
CSCO’s Share Price Performance, Valuation & Estimates
Shares of Cisco Systems have appreciated 38.5% year to date, outperforming the broader Zacks Computer and Technology sector’s 22.6% growth.
CSCO Stock’s Price Performance
Image Source: Zacks Investment Research
CSCO stock is trading at a premium, with forward 12-month price/earnings of 20.56X compared with the broader sector’s 21.27X. Cisco Systems has a Value Score of F.
CSCO’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Cisco Systems’ earnings is currently pegged at $1.32 per share, down by a penny over the past 30 days, suggesting 32% growth.
Cisco Systems, Inc. Price and Consensus
Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote
Cisco Systems currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
