Cisco Buys AI Firm Splunk in Historic $28B Deal

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Facts

  • Technology giant Cisco agreed on Thursday to buy Splunk, a data-analysis and artificial intelligence-powered cybersecurity company, for  $28B in one of the largest business acquisitions of the year and the age of AI.1
  • Splunk's AI-driven technology helps businesses minimize the risk of hacks and fix technical issues faster by monitoring and analyzing their data.2
  • Though regulatory approval is still needed, Cisco has offered to pay $157 per share, which is 31% higher than Splunk's last closing price. While the news sent shares of Splunk rising 21% to $145.04, Cisco's stock dropped 4% due to uncertainty surrounding regulatory scrutiny.3
  • Cisco, the world's largest maker of computer networking equipment, has been moving toward cybersecurity improvements in recent years to meet growing customer demand. Its previous record-breaking purchase was the acquisition of cable set-top box maker Scientific Atlanta in 2006 for $6.9B.2
  • This marks Cisco's latest step away from its roots in network hardware and towards AI-driven software subscriptions, a move driven by acquisitions. This is its eighth takeover this year.4
  • The deal, dependent on regulatory approvals, is expected to close by the end of the third quarter of 2024.3

Sources: 1Forbes, 2CNBC, 3Reuters and 4New York Times.

Narratives

  • Narrative A, as provided by Seeking Alpha. While some analysts are expressing sticker shock at the cost of this historic deal, the purchase price of $157 per share in cash for Splunk is fair, given the company's predicted revenue. Joining forces with a cybersecurity company like Splunk positions Cisco to compete in the space against other tech giants like Google, Adobe, and Amazon. It's a well-designed strategic move.
  • Narrative B, as provided by FT. Cisco is trying to reposition itself from a router and networking equipment maker to a software and recurring revenue player. This kind of challenging pivot won't happen overnight, even by throwing lots of money at the problem. The fact that Cisco has repeatedly missed its profit targets adds another layer of complexity. Time will show if this deal is the right path to moving forward.
  • Narrative C, as provided by Verge. AI companies, as is the case in the broader tech industry, are now being swallowed up by corporate giants for the purpose of growing profits. AI image and text generators are expensive due to the amount of data involved, but that doesn't mean the government should allow these behemoths to monopolize the market. This is just the dawn of a new economic era, so regulators should begin working to stop monopolization before it's too late.