TLDR
- Cisco delivered Q2 earnings of $1.04 per share on $15.3B revenue, surpassing analyst predictions
- Stock fell 5% after-hours as annual revenue forecast of $61.2-$61.7B trailed estimates by over $2B
- Networking revenue climbed 21% year-over-year to $8.29B as AI data center buildout accelerates
- Adjusted gross margin of 67.5% missed 68.14% target as memory chip shortage drives up costs
- Silicon One G300 AI chip debut positions Cisco for $5B+ in AI orders this fiscal year
Cisco Systems turned in solid second-quarter results but couldn’t escape the selling pressure. Investors zeroed in on weaker-than-expected full-year revenue guidance, sending shares lower in extended trading.
The company posted adjusted earnings of $1.04 per share, beating analyst estimates of $1.02 per share. Revenue came in at $15.3 billion versus the $15.11 billion consensus.
Despite the beat, shares dropped 5% after-hours. The reason? Full-year revenue guidance that fell short by a wide margin.
Cisco projects annual revenue between $61.2 billion and $61.7 billion. Wall Street wanted $63.9 billion. That’s a gap of more than $2 billion, and the market noticed.
The networking division powered quarterly results. Revenue hit $8.29 billion, well above the $7.9 billion estimate and up 21% from last year. Enterprise customers are spending heavily on infrastructure to support AI workloads.
Security revenue told a different story. The segment generated $2.02 billion, missing the $2.11 billion forecast and declining 4% year-over-year.
Chip Costs Pressure Margins
Gross margin came in below expectations. The adjusted figure landed at 67.5%, short of the 68.14% target analysts had penciled in.
Memory chip prices are the main issue. The global rush to build AI infrastructure has created a shortage of these components. Prices have spiked as a result.
Cisco’s products use memory chips extensively, so higher input costs translate directly to margin pressure. Barclays analysts noted surprise at the magnitude of the margin miss.
CEO Chuck Robbins addressed the concern during the earnings call. He confirmed Cisco has raised prices and is renegotiating contracts with customers. The company expects continued strong demand for its systems and optics products, but chip costs remain a challenge.
Near-Term Outlook Holds Steady
Third-quarter guidance met expectations. Cisco forecasts earnings of $1.02 to $1.04 per share on revenue of $15.4 billion to $15.6 billion. Analysts projected $1.03 per share and $15.19 billion.
Full-year earnings guidance of $4.13 to $4.17 per share aligns with Street estimates of $4.13. But that revenue projection continues to be the sticking point for investors.
Cisco shares have performed well recently. The stock gained 37% over the past year and reached an all-time high in December—the first time since March 2000 that shares hit such levels.
AI Infrastructure Play Gains Traction
The stock’s strength reflects Cisco’s exposure to AI infrastructure spending. Hardware names are attracting capital while software stocks face headwinds from AI disruption fears.
Raymond James analyst Simon Leopold observed that tech investors view AI hardware as a preferred alternative to software exposure. He rates shares Market Perform.
Cisco unveiled the Silicon One G300 AI chip this week. William Blair analyst Sebastien Naji said the launch demonstrates Cisco’s strategy to capture the complete AI opportunity from chips through software.
Robbins emphasized the company’s infrastructure positioning for the AI buildout. Cisco now expects AI-related orders to top $5 billion for fiscal 2026, higher than previous projections.
Strong networking demand driven by AI infrastructure spending continues to offset pressure in other segments. The security business remains weak, but enterprise customers keep buying switches, routers, and optical equipment needed for AI data centers.
