Cisco Systems (CSCO) rose more than 15% on Thursday after its fiscal third-quarter earnings call reported higher demand from AI hyperscalers. The company said it now expects AI infrastructure orders of about $9 billion from hyperscalers in FY ’26.
Cisco forecast Q4 revenue of $16.8 billion, which is $1 billion above consensus. It also guided adjusted EPS at $1.17, or 10 cents above consensus.
In 1999, Cisco gained more than 126%, while the NASDAQ 100 rose 102%. From March 2000, Cisco fell about 90% over the next 18 months, and it did not close above its March 2000 high of $82 on a monthly basis until last month.
Intel (INTC) was also part of the DotCom era and has risen 438% in the last year. The article links this move to $10 billion of federal funding in 2025 and demand for data centre compute.
Cisco is up over 90% in the last year. The 2027 consensus for adjusted EPS is $4.68, implying about a 25x multiple.
Technical levels cited include $129.08 (361.8%), $138.59 (423.6%), and support near $113.70 (261.8%).
Given Cisco’s explosive move on strong AI-related guidance, we should consider bullish options strategies to capture further upside in the coming weeks. Buying call options with strike prices near the technical targets of $129 or $138 allows us to participate in the momentum with a defined, limited risk. This is a more capital-efficient approach than chasing the stock after such a significant single-day rally.
The broader market environment feels euphoric, which supports this momentum but also calls for caution. The CBOE Volatility Index (VIX) has been trading near historic lows around 13, showing a lack of fear, while the equity put/call ratio remains below 0.70, indicating heavy speculation on rising prices. This combination of low fear and high bullish sentiment is reminiscent of the market conditions we saw in late 1999 before the crash.
The memory of Cisco’s 90% collapse after its March 2000 peak is a stark reminder of the risks involved. We should therefore hedge any bullish positions by purchasing put options with strike prices below the key support level of $113.70. This strategy provides a safety net in case this AI-fueled rally falters and we see a sharp retracement similar to what happened over two decades ago.
While legacy names like Cisco and Intel are finally joining the rally, the underlying market health shows some weakness. We’ve seen that the percentage of stocks trading above their 50-day moving average has been declining, even as the main indexes push higher. This suggests the rally is being driven by a narrowing group of big names, a classic late-cycle warning sign.
Considering the high implied volatility in Cisco options after this price surge, we should look at vertical spreads to lower our entry cost. A bull call spread, for instance, allows us to target a move higher while capping our maximum loss and reducing the impact of volatility decay. This offers a balanced way to profit from the ongoing euphoria without taking on excessive risk.
