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Why Cisco's $28B Splunk Buy Could Mark Nasdaq's Peak

Cisco (CSCO) is the poster child of the great dotcom bubble of 2000. The telecom giant spent the last 12 years more than tripling in value. Its peers fared far better. To ignite growth, the hardware seller continued its pivot into software.

This big buyout could signify a peak in the Nasdaq index.

Together with high interest rates, the tech sector is due to fall. Cisco wanted Splunk to make its company more secure and resilient, as AI becomes a greater part of everyday life. Unfortunately for Cisco, Splunk is not an AI play. It offers the monitoring and analysis of data. Data analytics is a fad from a few years ago. Splunk’s slow growth ahead could lead to a goodwill write-down for Cisco in a few years. The deal will not close until next year.

Cisco could have spent the cash it accumulated by holding money market funds or short-term treasury funds. It could have waited for tech stock valuations to fall. Instead, shareholders will suffer if the company does not realize synergies. Cisco hardware sales may worsen during the slowdown. It will need to complement Splunk’s offering urgently to prevent customer losses.

Beware of Cisco stock at this time.