Written by Cassian Vance
Cisco Systems (NASDAQ: CSCO) closed fiscal 2026 with record revenue, accelerating networking demand and a material increase in AI-infrastructure orders. On the surface, the result looks like an unambiguous confirmation that the company has moved from a legacy-networking story to a credible participant in the data-center AI buildout. Yet the market’s negative reaction shows why the next phase is more demanding: Cisco must prove that higher AI revenue can scale without permanently diluting the margins that make the business valuable.
Cisco’s fiscal fourth-quarter release reported revenue of $17.3 billion for the quarter ended July 25, up 18% from $14.7 billion in fiscal Q4 2025. GAAP net income rose 51% to $3.9 billion, while GAAP diluted EPS increased 52% to $0.97. On the company’s non-GAAP basis, EPS was $1.22, up 23% year over year. The difference between GAAP and non-GAAP growth is worth noting: the underlying quarter was strong, but investors should not treat the two measures as interchangeable.
The headline operating evidence is compelling. Total product orders rose 35% year over year in Q4, or 25% excluding hyperscalers, while networking product orders increased 40%. Product revenue rose 24%, compared with flat services revenue. Cisco’s networking revenue reached $9.79 billion, up 28%, while security revenue grew 14% to $2.23 billion. Growth was broad geographically, with the Americas up 18%, EMEA up 19% and APJC up 14%.
AI demand is becoming a meaningful contributor rather than a distant opportunity. Cisco took $4.0 billion of AI-infrastructure orders in Q4, bringing fiscal 2026 AI orders to $9.3 billion. It delivered approximately $4.0 billion of AI-infrastructure revenue over the full year and now expects $7.5 billion in fiscal 2027. That revenue target would make AI a material growth engine for a company that generated $63.3 billion of total fiscal 2026 revenue.
Management’s fiscal 2027 guide reinforces the optimism. Cisco expects Q1 revenue of $18.0 billion to $18.2 billion, with non-GAAP EPS of $1.32 to $1.34. For the full fiscal year, it guides to revenue of $72.2 billion to $73.4 billion and non-GAAP EPS of $5.05 to $5.11. The revenue range implies growth of 14% to 16% from fiscal 2026’s $63.3 billion, well ahead of the growth profile investors historically associated with the company.
Why, then, did the shares fall sharply after the release? The answer lies in expectations and mix. Cisco’s Q4 non-GAAP gross margin was 66.3%, down from 68.4% a year earlier, even as GAAP gross margin rose to 64.1% from 63.2%. Higher AI-system sales can carry lower initial margins than Cisco’s established software, security and services businesses. In other words, investors saw powerful demand but questioned how much of that new revenue will translate into incremental earnings.
The balance-sheet and cash-flow position offers meaningful protection. Cisco generated $5.4 billion in operating cash flow in Q4, up 27% year over year, and held $15.9 billion in cash, cash equivalents and investments at quarter-end. Remaining performance obligations rose 7% to $46.7 billion. The company also returned $3.2 billion to shareholders through dividends and repurchases during the quarter. This is not a balance-sheet-stretched AI bet; it is a mature cash generator funding an AI transition.
The principal risk is that the AI narrative becomes too dependent on hyperscaler spending cycles and hardware-heavy mix. Cisco must demonstrate that its secure networking, optical, security and software layers attach profitably to AI deployments. Margin stabilization, continued enterprise order strength and conversion of AI orders into revenue will be the metrics that matter most over the next two quarters.
Verdict on Cisco Systems (CSCO): BUY. Cisco’s fiscal 2027 outlook and AI-order momentum justify a more constructive view, while its cash generation makes the company better positioned than most infrastructure vendors to absorb a temporary gross-margin reset.
Price Target: $130.00
Disclaimer: The information provided in this article is for informational and educational purposes only and should not be construed as financial advice. Readers should do their own due diligence before making any investment decisions. Past performance does not equal future results.
