AI Networking Demand Drives Cisco Growth as Margin Pressure Weighs on Shares

Cisco’s AI Orders Point to a Growing Networking Opportunity

Cisco Systems (CSCO) reported fiscal fourth-quarter revenue of $17.25 billion, up 18% from a year earlier and above Wall Street expectations, while adjusted earnings of $1.22 per share also topped consensus estimates. The company ended fiscal 2026 with $63.3 billion in annual revenue and $13.3 billion in GAAP net income.

The stronger operating results were accompanied by rapid growth in AI infrastructure orders and an outlook well above analyst forecasts. Even so, Cisco shares fell roughly 6% to 7% as investors focused on lower gross margins, expectations surrounding the conversion of AI orders into revenue, and a stock that had already risen sharply ahead of the report.

Key Points

• Cisco's fiscal fourth-quarter revenue increased 18% to $17.25 billion, while adjusted EPS of $1.22 exceeded the $1.17 consensus estimate.
• Fiscal 2026 AI infrastructure orders reached $9.3 billion, including $4 billion in the fourth quarter, while Cisco expects hyperscaler AI infrastructure revenue of $7.5 billion in fiscal 2027.
• Cisco stock fell despite strong results and guidance as investors focused on gross-margin pressure, elevated expectations, and the pace at which AI orders will convert into revenue.

AI Infrastructure Orders Accelerate Across Cisco

Cisco's networking business was one of the strongest areas of the quarter. Networking revenue reached $9.79 billion, up 28% from the prior year and ahead of analyst expectations of $9.66 billion.

The order picture was even stronger. Total product orders increased 35% year over year, while networking orders rose 40%, marking the eighth consecutive quarter of double-digit growth. Hyperscaler orders grew at a triple-digit rate, enterprise orders increased 21%, and public-sector orders advanced 30%.

AI infrastructure was a major contributor. Cisco booked $4 billion in hyperscaler AI infrastructure orders during the fourth quarter, bringing the fiscal 2026 total to $9.3 billion. That was approximately 4.5 times the fiscal 2025 level.

The company generated about $4 billion in hyperscaler AI infrastructure revenue during fiscal 2026 and expects that figure to rise to $7.5 billion in fiscal 2027.

Demand was not confined to hyperscalers. AI infrastructure orders from neocloud, sovereign-cloud, and enterprise customers exceeded $400 million in the fourth quarter and surpassed $1 billion for the full fiscal year.

Cisco also reported more than $1 billion in fourth-quarter orders for its Acacia business. AI-tagged Nexus switch orders increased more than 85% sequentially, while data-center networking orders grew more than 35%.

Why Did Cisco Stock Fall Despite Strong Earnings?

The market reaction contrasted sharply with the underlying results. Cisco shares initially moved higher following the report before falling roughly 6% in premarket and early trading.

One source of pressure was profitability. Non-GAAP gross margin declined to 66.3% from 68.4% a year earlier. Cisco expects first-quarter fiscal 2027 non-GAAP gross margin of 65% to 66%, implying another sequential decline from the fourth quarter.

The changing business mix toward AI infrastructure is one factor highlighted in the supplied analysis. Faster growth in hardware tied to AI networking carries different economics than some of Cisco's other businesses, creating more scrutiny around how quickly revenue growth translates into profitability.

Expectations also entered the report at elevated levels. Cisco shares had gained 61% during 2026 before the earnings reaction. With fiscal 2026 AI infrastructure orders reaching $9.3 billion, investors may also have expected a fiscal 2027 AI revenue target above the $7.5 billion Cisco provided.

The result was an unusual earnings reaction: stronger revenue, better earnings, broad order growth, and above-consensus guidance were not enough to push the stock higher.

What Matters Next for Cisco’s AI Growth?

Cisco's fiscal 2027 outlook indicates that management expects the current momentum to continue.

For the first fiscal quarter, Cisco expects revenue of $18 billion to $18.2 billion, well above the roughly $16.8 billion analyst estimate. Adjusted EPS is projected at $1.32 to $1.34, compared with consensus expectations around $1.16.

For the full fiscal year, Cisco expects revenue of $72.2 billion to $73.4 billion and adjusted EPS of $5.05 to $5.11. Both ranges were above Wall Street expectations included in the supplied material.

Management described accelerating agentic AI adoption as part of what it sees as the early stages of a networking supercycle. The opportunity extends beyond simply connecting AI data centers. Cisco also sees AI increasing demand for cybersecurity, observability, enterprise networking, cloud infrastructure, and edge deployments.

Security orders grew at a double-digit rate during the quarter, firewall orders increased more than 30%, and more than 1,500 customers adopted Cisco's newer security products. Collaboration also delivered its strongest quarter in seven years, with video-device revenue rising 40%.

Cisco therefore enters fiscal 2027 with AI demand contributing across several parts of its portfolio rather than a single hardware category.

What It Means for Investors

Cisco's fourth-quarter results show that AI infrastructure spending is translating into measurable networking demand. The company ended fiscal 2026 with $9.3 billion in AI infrastructure orders, strong hyperscaler activity, accelerating enterprise orders, and a fiscal 2027 revenue outlook substantially above analyst expectations.

The stock's decline shows that strong demand alone is no longer the only metric investors are evaluating. Gross-margin trends and the pace at which the order backlog becomes recognized revenue are also becoming important parts of the Cisco stock story.

The contrast is particularly notable because demand remained broad. Even excluding hyperscalers, product orders increased 25%, while enterprise orders grew 21%. That means Cisco's growth was not limited to the largest AI infrastructure customers.

At the same time, the shift toward faster-growing AI hardware contributed to greater attention on margins. Cisco's ability to convert higher networking volumes and AI infrastructure orders into sustained revenue growth while managing that profitability trade-off will remain central to the market's assessment of the business.

Conclusion

Cisco's fiscal fourth quarter delivered strong evidence of accelerating AI and networking demand. Revenue increased 18%, product orders rose 35%, AI infrastructure orders reached $9.3 billion for fiscal 2026, and management issued fiscal 2027 guidance well above Wall Street expectations.

Yet Cisco stock moved lower because expectations were already elevated and gross margins are moving in the opposite direction from revenue growth. The reaction illustrates an increasingly important distinction in the AI infrastructure trade: investors are looking beyond demand itself and focusing more closely on how efficiently companies convert that demand into revenue and earnings.

Cisco still describes the current environment as the beginning of a multiyear networking supercycle. Fiscal 2027 will provide a clearer test of that view as the company works to convert its growing AI order book into the $7.5 billion of hyperscaler AI infrastructure revenue it currently expects.

FAQs

Why did Cisco stock fall after strong earnings?

Cisco stock fell despite better-than-expected fourth-quarter results and strong fiscal 2027 guidance as investors focused on lower gross margins, elevated expectations, and questions about how quickly AI infrastructure orders will convert into revenue.

How large were Cisco's AI infrastructure orders in fiscal 2026?

Cisco booked $9.3 billion in hyperscaler AI infrastructure orders during fiscal 2026, including $4 billion in the fourth quarter. The full-year total was approximately 4.5 times the fiscal 2025 level.

How much AI infrastructure revenue does Cisco expect in fiscal 2027?

Cisco expects hyperscaler AI infrastructure revenue to reach $7.5 billion in fiscal 2027, up from roughly $4 billion in fiscal 2026.

What is Cisco forecasting for fiscal 2027?

Cisco expects fiscal 2027 revenue of $72.2 billion to $73.4 billion and adjusted earnings per share of $5.05 to $5.11, both above the analyst expectations included in the supplied material.

What is driving Cisco's networking growth?

Cisco said demand is being supported by hyperscaler AI infrastructure investment, enterprise AI deployments, infrastructure upgrades, cybersecurity needs, and broader adoption of agentic AI.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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