Cisco's impressive rally this year is just the beginning of a bigger run for the stock, Goldman Sachs told clients Friday.

Highlighting healthy demand and tax reform benefits, analyst Rod Hall added the internet networking company to Goldman's conviction list and bumped his price forecast to $54, implying more than 25 percent upside over the next 12 months. Hall previously had a $51 target for the stock.

"We expect Cisco to deliver significant returns to shareholders from the recently enacted tax laws. Indeed, the company has already announced a $25 billion increase to share repurchase authorization, and hiked its dividend payout ratio to nearly 50 percent," Hall wrote in a note.

"As market volatility increases we also see Cisco as relatively defensive in our sector," he added. "Cisco's end markets remain healthy and improving."

Cisco shares are up more than 12 percent in 2018, well ahead of the S&P 500's decline of 1.1 percent over the same period. Shares of Cisco rose 0.7 percent in premarket trading following the Goldman Sachs note.

— CNBC's Michael Bloom contributed reporting.