Cisco Falls 7% on Morgan Stanley Downgrade; Ciena Plunges 15%, Arista Networks Tumbles 10%

A Wall Street downgrade and a broad retreat from AI infrastructure stocks are hitting the networking group at the same time. Cisco Systems (NASDAQ:CSCO | CSCO Price Prediction) stock recently traded at $96.13, down 7%. Morgan Stanley downgraded Cisco to Equal-weight from Overweight on November 5, arguing that a strong run and AI-driven margin pressure leave the stock with less upside.

Larger losses are hitting Cisco’s AI-focused peers in the sell-off that followed Democrats winning control of Congress in the midterm elections. That outcome raised questions about the pace of artificial intelligence infrastructure expansion, and selling that began in chip stocks has spread to networking and optical names. Yahoo Finance’s Jared Blikre noted the NASDAQ Composite fell more than 5% as the post-midterm rally reversed, with the October jobs report ahead.

Why Morgan Stanley Cut Its Rating on Cisco

Morgan Stanley analyst Meta Marshall lowered the firm’s price target on Cisco to $120 from $135. Meta Marshall noted that Cisco stock gained 43% over the past 12 months against 14% for the S&P 500, a rally that lifted the company’s valuation to around 19 times forward earnings, in line with the index.

Two other concerns shaped the downgrade: customers may have pulled orders forward ahead of Cisco’s price increases, and a rising mix of lower-margin hardware sold to hyperscalers could weigh on gross margins. Marshall stated. “CSCO can continue to appreciate through earnings growth, but strong expectations and gross margin headwinds from AI business leave less room for upside.” Even so, Morgan Stanley still sees several years of double-digit growth ahead for Cisco.

Cisco’s management noted the margin trade-off on its August 12 earnings call, when its adjusted gross margin for Q4 FY2026 came in at 66.3% versus 68.4% a year earlier. Chief Financial Officer Mark Patterson told analysts to “expect a slight gross margin headwind as we move through FY 2027 as we address these very high growth opportunities.”

Ciena and Arista Fall Harder Than Cisco

Ciena (NYSE:CIEN) stock is at $230.81, down 15%. The optical systems maker relies more heavily on hyperscalers than Cisco does: cloud providers made up 53% of its revenue in Q3 FY2026, and two customers accounted for 41.7%. That concentration leaves Ciena more exposed to any rethink of spending on artificial intelligence infrastructure.

Arista Networks (NYSE:ANET) stock is at $159.82, down 10%. The decline follows Arista’s November 3 report of Q3 2026 revenue growth of 58.5% year over year, its fastest pace since going public. With a P/E ratio of 64x, Arista carries a higher valuation than Cisco, and that premium can increase selling when sentiment around AI spending turns.

The AI hardware selling has also reached optical component suppliers Lumentum (NASDAQ:LITE) and Coherent (NYSE:COHR), a sign of how far it has spread beyond Cisco’s corner of the market. The power, cooling, and networking names behind the AI expansion are the quieter way to play this theme, and we rounded up seven of them in a free AI infrastructure report.

How Cisco’s Business Model Stands Apart

Cisco sells across enterprise networking, security, collaboration and services, with hyperscaler AI infrastructure layered on top of a large installed base, and that mix spreads Cisco’s revenue across corporate, public-sector and telecom customers, which is one reason the stock isn’t falling as hard as its peers.

Ciena is a pure-play optical systems and interconnect vendor whose growth now depends largely on cloud spending to support AI networks. Arista specializes in high-end data center Ethernet switching tied to hyperscaler AI fabrics, though its enterprise campus business is growing too. Both rivals offer more direct leverage to AI spending than Cisco does, and that cuts in either direction when sentiment shifts.

What Cisco’s Downgrade Means for the Networking Trade

Cisco faces a key question: whether its Q1 FY2027 results show orders holding up after its price increases, which would ease the pull-forward concern. Supportive signs include $9.3 billion in AI infrastructure orders for FY2026 and the company’s guidance for FY2027 revenue of $72.2 billion to $73.4 billion. Bears counter that a fully valued stock and lower hardware margins could cap gains even if growth stays strong.

Hyperscaler spending under a Democratic-controlled Congress is the open question for Ciena and Arista. A sustained pullback in AI capital spending could hit both companies harder than Cisco, while a rebound might lift the pair faster too. Caution may be warranted until the debate over infrastructure spending for artificial intelligence resolves.

Contact [email protected] for any questions or corrections.