If you think about AI, the first company you think of is the chipmaker Nvidia, but it takes software and hardware to power AI. Some of the names in software include Alphabet (Google), Microsoft and Amazon. some of the names in hardware include IBM, Cisco and a host of others. What is normal is software companies once successful, while tend to continue to do well. Hardware companies tend to have more ups and downs because it is harder to stay up with trends.

In an article written by Irene Galea, Cisco Systems Inc, CEO Chuck Robbins says the company missed a major opportunity to expand 10 years ago as cloud computing took off. But he insists it will not make that mistake again with artificial intelligence or AI.

The networking equipment maker was a pioneer during the early expansion of the internet, but was late to invest in infrastructure underpinning the cloud. CEO Robbins said Cisco is well equipped to be successful with AI.

AI products currently represents a small fraction of the company’s total business. Cisco is investing in what Mr. Robbins foresees will be a decade-long run with AI. The company has built a pipeline of about $3 billion of orders for AI products.

To do even more in AI, Cisco bought Splunk for $28 billion. The company is a cybersecurity analytics platform that uses generative AI. CEO Robbins believes Splunk will be accretive to the company’s cash flow in year 1 and its earnings per share in year 2.

William Kerwin, an equity analyst at Morningstar, said the acquisition of Splunk will help boost the company’s cybersecurity business, which has been underperforming for the past few years. The investments in AI could help it win customers in the public cloud space, where it has been losing market share to competitors such as Arista Networks.

In the meantime, the company remains a stable leader in enterprise networks and data centres, growing in the low single digit range and generating good profits, while those markets are slower growth, they are not going anywhere.

In the near term, however, the half of Cisco’s income stream comes from non-recurring sales is experiencing what Mr. Kerwin called a COVID 19 hangover. During COVID, companies bought networking equipment to support their employees’ shift to remote work and now many have excess inventory.

The company expects revenues to earn $52.5 billion.

Linking to dividend paying stocks, a company the size of Cisco will tend to make money the question is how much money and what is the growth potential. If you own the shares for 5 years you would have double your investment or you likely did not lose money, but there were better alternatives. If you bought for growth, not the best, if you bought for the long-term not a bad investment. When you are investing a key question is what do you hope it does short and long term? Are you buying for growth or long-term increase in asset value?

There are more questions than answers, till the next time – to raising questions.