Inside Cisco's $1 Billion AI Play

(Editor's note: For more on networking and AI, please see our recently released Networking for AI Infrastructure report.)

This AI thing is fun, isn't it? Everybody wants a piece of the action. Today at Cisco Live, Cisco's annual conference, the networking giant announced a $1 billion AI investment fund with initial investments in Cohere, Mistral AI, and Scale AI.

This put AI front-and-center at Cisco's conference (of course), as the topic is required be the focus of every technology conference on earth these days. But with analogies of the Internet bubble permeating the landscape, it should make you a little worried. After all, Cisco, a darling of the Internet bubble in 2000, has yet to reclaim its all-time high in share price—which it attained a mere 24 years ago.

Cisco CEO Chuck Robbins’ jumped right in to AI in his keynote on today’s opening day at Cisco Live. “There’s this little thing called AI,” he said. “I was not allowed to get on stage and not say AI… what is it seven times?”

As part of the investment announcement, Cisco announced the $1B global AI investment would be used to “bolster the startup ecosystem and expand the development of secure and reliable AI solutions.” Cisco has already committed nearly $200M of the $1B investment fund to date.

This is an interesting strategy on several levels. It's a little surprising to see that with millions of lines of legacy code to manage and dozens of networking operating systems that need to be integrated, Cisco chose to focus on its AI investments. But then again, it’s not surprising. AI is everything right now, especially if you have a publicly traded technology company. You need skin in the game, and you want investors to have a reason to buy your stock.

An $1B AI fund seems like a relatively straightforward way to do that.

Is Cisco Late to the Party?

But here’s a good question on Cisco’s AI Play: Isn’t it kind of late?

ChatGPT, generally acknowledged as having kicked off the current investor frenzy for AI, was launched in November of 2022. It’s June of 2024. Why did Cisco wait nearly two years to make this move?

The urgency has risen because its shares have been stuck in the mud, while networking rival Arista Networks has emerged as a preeminent AI play.

Cisco leadership—as well as investors—clearly wanted a more forceful message that it's participating in the latest tech boom. In the period since the launch of ChatGPT in November of 2022, NVIDIA shares have appreciated 600% and Microsoft shares have appreciated 68%. Cisco shares are only up 11%. Cisco has been left out of the AI party, and it’s trying to buy its way in.

One of the common criticisms of Cisco's technology strategy is that it was slow to participate in the cloud boom. It's still mostly known as the enterprise networking company, despite its efforts to bolster areas such as security and cloud infrastructure. This new AI play looks like an effort to make sure it doesn't make the same mistake again.

Robbins Wants AI Skin in the Game

Robbins made a strong statement about Cisco and AI. Maybe there’s a chance that unlike cloud, Cisco can play a major role in the next great technology boom. The AI fund will not only give it equity positions, but it will also earn Cisco credibility and knowledge.

“All the C-suite executives used to ask why aren’t we in the cloud … “ said Robbins in the keynote. “Everybody’s going to do that on steroids on AI. Everybody’s going to want to know, what’s our plan? We want to do great things with AI and we want to do it in a responsible way.”

In the press release, Cisco pointed out that it’s made “more than 20 AI-focused acquisitions and investments, furthering GenAI and Machine Learning capabilities and integration of AI across the Cisco portfolio.”

The committed investments in the new AI fund include:

• Cohere: Headquartered in Toronto and San Francisco, Cohere provides security-focused large language models (LLMs) and industry-leading Retrieval-Augmented Generation (RAG) capabilities tailored to meet the needs of enterprises.
• Mistral AI: Mistral AI is one of the latest hot GenAI companies, headquartered in Paris and founded by researchers from Meta and Google. The company develops new models of GenAI for businesses. Microsoft was an early investor in Mistral and as recently as December of 2023 it was valued at $2billion. Additional investors Andreessen Horowitz and Lightspeed Venture Partners.
• Scale AI: Based in the U.S., Scale AI provides a data-centric, end-to-end platform providing training and validation for AI applications. Cisco recently participated in Scale AI's Series F funding as the round's largest strategic investor.

Futuriom Take: Cisco is now positioning itself as an AI smarty pants and investment vehicle. Will it work? Given Cisco’s current growth challenges, it’s not clear that this move alone will make it a primary target for AI investors.