NEW YORK (TheStreet) -- Of all the tech giants threatened by the cloud, Cisco Systems (CSCO) - Get Report may be in the most danger.

Virtualization, an essential cloud technology, is turning every ancillary computer function into software. Software Defined Networking has been around for years now, and while Cisco supports SDN, it doesn't deliver the kind of revenues and profits its previous switch lines did.

Those sales and profits are considerable. Cisco had $48 billion in sales for its last fiscal year, ending in July. Some $9.98 billion of that hit the net income line, and the company generated over $8 billion in free cash flow from operations. At 10 a.m. Tuesday, Cisco stock was trading at $21.85 per share, up 1.3% on yesterday's trading and up 4.6% over the past 12 months.

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The problem is that for the firsttwo quarters of 2014, sales seem to have slowed. The company generated just $23.3 billion in revenue for the last six months, with about $3.4 billion in GAAP net income, and margins have been on a downward trajectory for four quarters running.

Cisco makes its money from switches, devices that move data between different networks. Cisco's top-of-the-line switches are now optical switches, moving data between fiber networks at speeds starting at 100 gigabits per second.

But even Cisco knows that the age of high-end switching is ending.

We know this because Cisco has gone from a growth stock to a yield stock. Its top line has grown just 21% over the last three full fiscal years, and the dividend now delivers a yield of 3.48%.

Cisco's latest growth plan is a $1 billion investment in cloud computing over two years, which it calls "the world's largest Intercloud."

The idea is to work with business partners around the world to connect their OpenStack clouds, some public and some private. Rather than building its own public or private cloud, Cisco wants to be the glue holding the clouds of its business partners together.

Unfortunately, what Cisco is planning is very little money in today's cloud world. IBM (IBM) - Get Report is investing in cloud at double that rate. Capital spending at Amazon (AMZN) - Get Report is now almost $3.5 billion each year and Google (GOOG) - Get Report spends twice as much as that

Cloud is becoming an arms race, and Cisco may not have the financial wherewithal to keep up, unless it makes some radical financial moves that stockholders may not like.

As RBC Capital Markets' Mark Sue told Brad Reece's blog last August, Cisco is already spending an estimated $6 billion this year buying back stock. Spending on dividends is also rising. The current 19 cent per share dividend costs almost $600 million per quarter to service.

Cisco's employee compensation program is also heavily tilted toward stock. The number of shares outstanding actually rose last year because more stock was distributed than was bought back.

Assuming the new cloud investment is being added to Cisco's existing capital expense budget, which now averages $1.16 billion per year, Cisco is about to undergo a severe cash crunch.

And there is no guarantee that this plan will work.

What is clear in the cloud market right now is that price sells cloud. Amazon keeps dropping its public cloud prices, Google and Microsoft (MSFT) - Get Report race to follow suit, and the OpenStack open source standard, being pushed by dozens of companies including IBM, Hewlett-Packard (HPQ) - Get Report, Red Hat (RHT) - Get Report, and Cisco, risks getting left behind.

These companies all insist that their clients will want to build their own private clouds or have service providers manage such facilities for them, and will demand that external public clouds follow the OpenStack model.

But will they? And will these clients also pay up for some form of Intercloud "glue" like the system Cisco is developing?

That is unclear. Cisco's investment is speculative, based on assumptions that have yet to pan out in the market. And unless it can generate a good return on that investment its days as even a good yield stock may be numbered.

At the time of publication, the author was long on Google and Amazon, but held no positions in any of the other stocks mentioned.

Follow @danablankenhorn

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.