$10 Billion China Investment Is Just What Cisco Systems Inc. (Nasdaq: CSCO) Stock Needs

csco stockCisco Systems Inc. (Nasdaq: CSCO) stock is already the most attractive play on networking hardware.

And after yesterday's (Wednesday) announcement, CSCO stock may have become even more attractive over the long term.

You see, Cisco announced it is going to grow its investment in China by $10 billion over the next several years.

The CSCO stock price got a slight 0.8% bump on the development, but the Chinese initiative is only going to help solidify CSCO stock as one of the best tech stocks to buy.

This announcement is all coming as Cisco's CEO for 20 years, John Chambers, will step down and hand the role off to Chuck Robbins in July. And the move is going to position the new CEO well.

"I'm encouraged to see they're changing leaders. I think that Chambers has been there a little bit too long," Money Morning Defense & Tech Specialist Michael A. Robinson said. "The challenge for the new CEO will be defending market share."

And this heavier push into China will be a good maneuver to defend market share.

Here's why...

CSCO Stock: The Best Play on Network Hardware

What makes CSCO stock such a good portfolio builder is its dominant role in network hardware.

"They still make good products," Robinson said. "It's one of those big-cap companies that I think is a good foundational play."

Cisco holds a 44% market share in what was an $18.4 billion industry in 2014, according to Bloomberg Intelligence.

They lead market share in switches at 56.8%, routing at 47.8%, data center network hardware at 46.9%, and even to a lesser extent, IP telephony and Wireless LAN at 28.3% and 24.7%, respectively.

There's really no disputing the value of CSCO stock when it comes to its presence in the industry.

But there is one challenge to that seemingly untouchable position...

It comes from two companies in particular: Juniper Networks Inc. (NYSE: JNPR) and Huawei Technology Co. Ltd.

Juniper is a challenge, but not a particularly daunting one. Even as Juniper snatches away some market share, it hasn't come close to knocking Cisco off its pedestal.

Cisco's market share for switches was at 64.5% in 2010 and fell to just around 57% in 2014. Juniper's has grown from 1.8% to 3%. In data center networking hardware, Cisco has fallen from 58.7% in 2014 to 46.9% - Juniper has grown from 2.1% to 3%.

The numbers are still in Cisco's favor. If Cisco begins to make bigger investments in software-defined networks (SDNs) - which consolidate control of networking outside of the individual hardware and represent a market that is expected to grow from $3.4 billion in 2014 to $35.6 billion in 2018, according to SDxCentral - Cisco will be able to further defend itself on the domestic front.

Taking on Huawei will present a different challenge.

Huawei has grown routing market share from 6.9% in 2010 to 12.8% in 2014, while Cisco's share has fallen from 55.3% to 47.8%.

This is all coming from China.

Because Huawei is only a threat to Cisco's growth in China, it won't be enough to dethrone the mighty Cisco in its U.S. sales.

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But routing in China is a big market that Cisco could forfeit to Huawei if it doesn't press hard on growth there. China's carrier router and switch market sales grew more than 15% in 2014, according to Infonetics.

This $10 billion investment shows Cisco is aware of this challenge and is tackling it head-on.

Bottom Line: CSCO stock is already a good investment. It is by leaps and bounds the market leader in routers, switches, and all kinds of network hardware. That doesn't mean it comes without its challenges. Protecting market share in the United States from Juniper will be one of the bigger challenges moving forward, and growth in China is an imperative. But this $10 billion investment is a good signal that Cisco isn't sitting on its hands in the face of these long-term headwinds. That's why you can expect CSCO stock to remain a profitable investment for years to come.

Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.

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