Another leading tech company is going all-in on artificial intelligence (AI). Cisco Systems (NASDAQ:CSCO) has long been one of the most prominent names in the digital communications space. Now, the company has announced a major cash deal that will significantly boost its AI exposure.
Cisco is acquiring software innovator Splunk (NASDAQ:SPLK), which has been focused on optimizing machine learning technology. While CSCO stock hasn’t seen much momentum today, SPLK stock is surging today as news of the deal continues to trend.
After a complicated month, this type of strategic acquisition may be exactly what Cisco needs to signal a turning point.
What’s Happening With CSCO Stock?
Despite an initial pop this morning, CSCO stock is struggling today. As of this writing, shares are down 4%, although the stock’s current trajectory suggests that a rebound could happen.
That said, things have been much better for its newest acquisition. Splunk shares are rising more than 20% so far today and showing no signs of a slowdown. Clearly, the market approves of this new deal, which is the latest in a series of software acquisitions for Cisco.
Splunk did not come cheaply. Cisco is paying $28 billion in cash for the software maker, marking its largest acquisition to date. As InvestorPlace contributor William White reports, that amounts to roughly $157 per share of SPLK stock. As shares currently trade at a per share price of around $145, that’s an excellent deal for investors.
This deal demonstrates that Cisco is focused on doubling down on its AI exposure before the revolutionary technology takes off even more. Accordingly, this could be the time for investors to snap up CSCO stock. The Splunk acquisition will help create “one of the largest software companies globally,” according to Cisco CEO Chuck Robbins. Further, Cisco has stated that its cash flow will increase as soon as the deal closes, which is expected in September 2024.
The Wall Street Journal reports:
“Cisco in recent years has moved its business away from the network routers, switchers and other hardware that the company was built on. Software has become a bigger part of the company’s revenue, and Cisco has been buying up smaller companies to boost growth.”
Now is also an excellent time to be focused on these types of acquisitions. InvestorPlace’s Luke Lango recently predicted that software makers will be the focal point of the third (and most profitable) wave of the AI boom. Cisco’s decision to acquire a company like Splunk — a software maker that offers investors significant AI exposure — suggests that management may agree with such a forecast.
If Lango is indeed correct, Cisco could very well soar once the deal closes and the third AI wave takes off.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
