Investors are starting to look beyond the chipmakers when it comes to the AI story. That’s because strong demand for AI chips has made this a place to get big returns. But other parts of the AI story matter as well. That’s why investors are shifting to software plays.
But other hardware components are equally valuable as AI tools continue to grow. Especially for hardware that can enable AI communications between humans and machines, as well as between machines.
That’s why communications hardware company Cisco (CSCO) could be a surprise AI play here. Growth and revenues are improving, and Cisco sees more demand ahead thanks to AI tools in the quarters ahead.
That’s helped push shares to a new 52-week and even five-year high, with the stock up nearly 30% in the past year.
Meanwhile, Cisco is a relative value play, trading at 17 times forward earnings. Margins are still under 20%, but improvements in the quarters ahead could help drive profitability higher.
Action to take: Cisco shares have been trending higher since the summer, and improving earnings should keep that momentum going. Today’s investors can also get a 2.6% dividend on Cisco’s shares, and the company just increased its payout slightly.
For traders, the April $65 calls are just out-of-the-money. Last trading for about $1.70, the options could see mid-double-digit returns on a continued rally in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.