CSCO Still Has Niche in AI Trade: Kim Forrest Sees Data & Data Centers as Moat

SPEAKER_1 (0:01)

Time to turn our attention over to Cisco. It's our tech spotlight time. We're focusing here on Cisco, and joining us right now, Kim Forrest, founder and chief investment officer at Boca Capital Partners. It's great to see you. I haven't seen you in a while. Kim, glad you're back here today. And so you are looking at Cisco, which you currently do not own. You remember the days of the valuation, I guess, volatility.

So tell us a little bit about Cisco on your mind.

Kim Forrest (0:30)

Sure. Well, oddly enough, I think Cisco would fit into how I view the world, which is I'm always looking for companies in niches that do or are at the frontier of doing things that other companies aren't doing.

And Cisco for the longest time was exactly that, networking, which I can just feel people's eyes glazing over right now. Really, you're talking to me about networking? Yes, I am. And it's super important because that's what keeps computers talking to each other. And talk about computers talking to each other, how about data and AI and data centers? So networking is really big in those areas. Now, the pluses and minuses are this.

Cisco has some great products. They have a range of products, not just for the data center, but for the enterprise. And they have a vast array of products. But the hot ones right now are data center. And the developers of these models are so picky about getting speed and making sure as much data goes through these models, especially when they're training, they have gone out and developed their own router software and their own router hardware. So the actual OpenAI and Anthropic and Google are competing directly with Cisco for the absolute highest most in demand routers. And that's a problem if you're looking for growth and somebody operating in that niche area.

SPEAKER_1 (2:07)

So I think about this and how you're talking about the evolution of networking and now the competition.

So can they actually, with their great product, still be competitive? Because you said how in the past, they really had that and you love a niche area. Can they be a competitive player in this when it comes to networking and the enterprise and the data centers?

Kim Forrest (2:33)

Well, I think for, let's just call it regular data centers. They're the king. They're very, very good at what they do. And they're everywhere there. I think what the real question is is, will the resources at the hyperscalers continue to just allow the people who are developing it to have any whim and say, hey, not only are we creating these models, but let's create the very core of the network, the routers, the switches, that kind of thing.

And that's a real question mark. I think that we're going to find out. Probably, over time, Cisco will retain its leadership position and the go-to nature, and these companies who are fighting for predominance, it feels like to the death, right?

Who's winning today? Meta, Cisco, Google, or I'm not Cisco, Meta, Google, OpenAI, Anthropic. Some day, they're going to run out of money, and they're just going to have to focus on what they do best, which is building models, not building the system in which to build models. So I think if you're a patient investor, you should take a look at Cisco and keep an eye on it, and see what happens in this crazy race of data centers and hyperscalers.

SPEAKER_1 (4:02)

Right. And when we think about the hyperscalers at this point, I'm not sure that, I guess you're waiting to see what Cisco brings to the table, because you're not even saying wait and get it at a later time. You're waiting to see if really they have the wherewithal to make this turn into the next decade type of thing, right? I mean, when we think about the other names, like you mentioned Meta, OpenAI, Anthropic. Some of them are more hardware versus software, et cetera, or parts and things. But when we think about some of the other players, what names do you really like for this AI evolution?

That could be featured that you actually do like.

Kim Forrest (4:46)

Okay. So I'm still in the semiconductor camp, that those are the picks and shovels of the gold rush of AI.

I continue to like NVIDIA, always a great pick. AMD is coming on strong. Intel, I mean, that's so crazy, but they came out of nowhere again. And all of these companies are still extremely high in demand. And it looks like they're sold out, the highest processors for the foreseeable future. And it depends on how much you think AI build out is actually going to change the end producers. Like will they have enough capacity to satisfy AI?