Morgan Stanley points out: The winner in the rebound of network equipment is not Cisco, but F5 (FFIV.US)

Zhitong Finance APP has noticed that while the market is still buying into the AI hardware frenzy, Morgan Stanley is turning its attention to a more "old-fashioned" sector—enterprise network equipment. The firm states that this long-neglected segment is experiencing a solid recovery driven by "aging equipment + security," and the real dark horse is not industry giant Cisco, but veteran application delivery vendor F5 (FFIV.US).

Morgan Stanley maintains an "Equal-weight" industry rating for the telecom network equipment sector. The core narrative is: moderate growth recovery, enhanced defensiveness, and a return to disciplined investment. This is not a “comprehensive bullish” report, but rather a screening guide centered on “whoever has an independent upgrade story wins.” In this round, Morgan Stanley is positioning F5 as its biggest bullish pick.

Growth expectations are rebounding, but "defensiveness" is key

Data shows that network equipment growth expectations for 2026 have risen to 3.0%, up 39 basis points from 2.6% last quarter, with 2027 expectations at 2.8%. Overall IT budget growth has also improved from 3.8% to 4.0%. But the more important signal lies in the structure: network equipment has climbed from 4th to 3rd place in the "spending defensiveness" ranking since last quarter—meaning CIOs are increasingly reluctant to cut network infrastructure when trimming budgets.

Behind this is a clear upgrade rationale: 45% of respondents cited "aging equipment/end-of-life" as the primary driver for upgrades (up from 37% last quarter), and security-related upgrades also rose from 21% to 28%. The overall upgrade cycle for network equipment is lengthening—campus switches 5.0 years, data center switches 4.7 years, firewalls 4.4 years—yet the longer cycle actually indicates that demand is “pent-up just-in-time need,” rather than pre-exhaustion.

F5: An underrated upgrade story

Morgan Stanley believes F5 will be the true dark horse in the sector. Its three-year net spending intention jumped from +5% to +24%, an increase of 19 percentage points, making it the largest improvement among peers. In contrast, Cisco (CSCO.US) declined from +57% to +28%, and Arista (ANET.US) fell from +29% to +25%.

F5’s outlook is backed by two solid data points: First, 49% of F5 clients plan to upgrade VIPRION or iSeries products in the next 12 months (up from 35% last quarter), with the majority concentrated in the next 4–6 months, indicating visible near-term demand. Second, in enterprise cloud migration, 55% of CIOs now prefer traditional vendors and their virtual products (up from just 31% last quarter), and traditional ADC usage has also rebounded from 43% to 54%. Morgan Stanley notes that as the cloud-native narrative fades, clients are returning to pay for “stable and controllable” established solutions.

Price hikes no longer trigger "panic buying," investment returns to discipline

An interesting counterintuitive observation: Morgan Stanley believes that equipment price increases can no longer stimulate advance purchasing. 87% of CIOs reported quarter-on-quarter price hikes, yet when asked about “further vendor price increases,” 40% would stick to their original plans, 40% would postpone and wait for memory prices to decline, and only 18% would bring purchases forward. This confirms that underlying demand is for “steady replacement,” not “panic buying.” Project delays grew from 2% to 13%, but order cancellations remain just 3%, and 45% of respondents said their ordering pace hasn’t changed—evidence of pronounced investment discipline rather than weakening demand.

Security remains the most resilient budget focus, but emphasis is shifting to migration

Security software ranks second in both spending priority and defensiveness, with network security/SASE accounting for 38% and firmly holding the top spot as the main driver of network budgets. Notably, Identity and Access Management (IAM) has surged as the top security priority (35%, up from 18% last quarter), and AI security priorities have broadened from “data protection” to now include “agent identity” (22%, up from 11% last quarter).

At the vendor level, Palo Alto Networks (PANW.US) and CrowdStrike (CRWD.US) continue to lead with 47% each in platform procurement/evaluation share, while Fortinet (FTNT.US) stands out as the only name with across-the-board improvement.