Zacks Equity Research named Cisco Systems, Digi International and Lantronix as the three networking stocks to watch in its industry outlook published October 30, 2026, citing AI infrastructure spending as the primary growth vector for the sector.
The Yahoo! Finance report frames the Computer-Networking industry as a direct beneficiary of the compute buildout: hyperscale data centers, agentic AI and edge workloads all require new interconnects, optical links and switching capacity. The protocol layer of the AI economy is, quite literally, the network.
Industry performance and valuation
The Zacks Computer-Networking industry has gained 51.9% over the past year, outperforming both the S&P 500, up 13.3%, and the broader Computer and Technology sector, up 13.4%. Zacks ranks the industry #75, placing it in the top 30% of its 247 tracked industries.
Valuation reflects the rerating. The industry trades at a forward 12-month price-to-earnings ratio of 24.62, against 19.27 for the S&P 500 and 19.25 for the sector. The five-year range runs from 12.45 to 31.47, with a median of 17.27. The market is pricing continued AI-driven capex, not a cyclical peak.
What is driving demand
Zacks identifies four structural trends. First, generative and agentic AI are pushing traffic growth and forcing the transition toward 800G and 1.6T networking technologies. Second, 5G deployment continues to require investment in fiber backhaul and core capacity for smart homes, factories, hospitals and autonomous vehicles. Third, the Wi-Fi 7 upgrade cycle follows the Wi-Fi 6E rollout, with rising device density demanding more spectrum and bandwidth. Fourth, cybersecurity demand is rising, with zero-trust architectures and continuous monitoring becoming baseline requirements for hybrid environments.
Headwinds persist. Zacks flags cautious IT spending, tariff-driven supply chain volatility between the United States and China, and pricing pressure from intense competition. Inflation may constrain spending among small and medium-sized businesses.
Cisco Systems: the AI networking super cycle
Cisco, headquartered in San Jose, expects AI infrastructure revenue from hyperscalers to reach $7.5 billion in fiscal 2027. On its last earnings call, the company described accelerating agentic AI as the trigger for a networking super cycle, with demand spanning cloud, on-premise and edge inference environments.
Fiscal 2026 hyperscaler AI orders split roughly 60% Silicon One-based systems and 40% optics. Acacia, its optical networking unit, generated more than $1 billion in orders in the fiscal fourth quarter. In October, Cisco announced a collaboration with NVIDIA on an open industry specification for 400G-per-lane pluggable optics.
Cisco projects fiscal 2027 revenues of $72.2 billion to $73.4 billion and non-GAAP earnings of $5.05 to $5.11 per share. The stock has gained 51.3% over the past year and carries a Zacks Rank #2 (Buy). A separate Tradingkey analysis places Cisco's 2026 gains near 46%, ahead of both the Nasdaq and the broader sector.
Digi International: AI agents in network operations
Digi International, based in Hopkins, Minnesota, provides business and mission-critical IoT products spanning embedded systems, edge computing and turnkey vertical solutions. The company expects annual recurring revenue to grow 27% in fiscal 2026, up from an earlier projection of 25%.
The most notable signal for anyone tracking automated governance of infrastructure is DANI, the Digi Artificial Network Intelligence agent launched earlier this year. DANI is embedded in Digi Remote Manager and lets operators monitor issues, identify causes and receive recommended actions through a conversational interface. Machine-managed networks are no longer speculative; they are shipping as a product feature.
Digi also launched the EX60, an enterprise 5G router combining Wi-Fi 7 with AI-assisted management. Its proposed acquisition of Disruptive Technologies, expected to close before the end of 2026 pending regulatory approval, should add roughly $9 million in adjusted EBITDA and free cash flow in fiscal 2028. Management flagged supply chain pressure on margins. The stock has gained 106% over the past year and carries a Zacks Rank #3 (Hold).
Lantronix: edge AI and unmanned systems
Lantronix, based in Irvine, California, focuses on industrial and edge AI IoT solutions for enterprise IT, smart cities, and commercial and defense unmanned systems. Unmanned systems revenue reached $12.6 million in fiscal 2026, and management expects the segment to represent 15% to 20% of total revenues in fiscal 2027.
The inclusion of its Open-Q 8550CS system-on-module in the Blue UAS Framework strengthens its position with U.S. defense drone manufacturers. The company also introduced Spotter, an edge AI computing platform for autonomous drones and robotics. Its IoT System Solutions segment is recovering after federal government shutdowns extended procurement cycles, and the acquisition of Vecima Networks' Industrial IoT business, including the Nero Global Tracking platform, is expanding recurring software revenue.
Constraints remain: tightening memory availability, rising costs, and a growing share of lower-margin unmanned systems revenue. The stock has gained 23.8% over the past year and carries a Zacks Rank #3. Zacks holds its fiscal 2027 consensus estimate at 22 cents per share.
Why the networking layer matters for AI infrastructure
The compute economy runs on interconnection. Every inference workload, every edge deployment and every autonomous system depends on bandwidth, latency and observability guarantees that only the networking layer can provide. When Cisco reports that agentic AI is producing a super cycle in networking demand, the implication is clear: distributed intelligence requires distributed infrastructure, and that infrastructure must be provisioned, secured and increasingly automated.
Zacks notes that the top 50% of its ranked industries outperform the bottom 50% by more than two to one. A prior TradingView report from July 2026 highlighted the same demand drivers across the sector, confirming the trend is not a single-quarter artifact.
FAQ
Which networking stocks did Zacks highlight on October 30, 2026?
Cisco Systems (CSCO), Digi International (DGII) and Lantronix (LTRX).
How much AI infrastructure revenue does Cisco expect from hyperscalers?
Cisco expects $7.5 billion in AI infrastructure revenue from hyperscalers in fiscal 2027.
How has the networking industry performed over the past year?
The Zacks Computer-Networking industry gained 51.9%, outperforming the S&P 500's 13.3% return.