AI infrastructure spending boosts Cisco’s earnings and revenue, but its stock declines after-hours

Networking giant Cisco Systems Inc. coasted to a solid earnings and revenue beat and issued strong guidance for the current quarter, but a drop in gross margins seems to have spooked investors, sending its stock down in late trading today.

The company reported fourth-quarter earnings before certain costs such as stock compensation of $1.22 per share, easing past the analyst consensus estimate of $1.17 per share. Revenue for the period came to $17.25 billion, up 18% from a year earlier and ahead of Wall Street’s $16.82 billion forecast. Net income, meanwhile, jumped 51% from the year-ago period, to $3.9 billion.

Ahead of today’s report, Cisco’s stock had posted some impressive gains, rising more than 60% during the quarter and by about 8% so far this month. Investors have been encouraged by the idea that the company is starting to benefit more from the artificial intelligence boom.

The company’s latest results suggest that’s exactly what’s happening. Cisco’s biggest business, the networking segment, which covers equipment used in AI data centers, saw its revenue grow significantly thanks to increased sales of that gear. All told, the unit generated revenue of $9.79 billion, up 28% from a year ago and surpassing the Street’s forecast of $9.66 billion. Hyperscalers, or the massive data center operators that are driving much of the spending on AI infrastructure, placed orders worth $4 billion during the quarter, bringing the total spent on such equipment to $9.3 billion throughout Cisco’s fiscal year.

Chief Executive Chuck Robbins (pictured) hailed the company’s strong finish to fiscal 2026, saying the growth is a testament to both its innovation and execution. “With the breadth and depth of our portfolio and our competitive differentiation in secure networking, Cisco is well positioned to support our customers however or wherever they decide to deploy AI,” he said.

Cisco also offered a bullish forecast for the current quarter, saying that it’s targeting total revenue of $18 billion to $18.2 billion, surpassing the Street’s consensus estimate of $16.8 billion. The company also issued full year guidance for fiscal 2027, saying it’s looking at earnings of $5.05 to $5.11 per share on total sales of $72.2 billion to $73.4 billion, ahead of the Street’s forecast of $4.83 per share in earnings and $69.1 billion in sales.

Despite the solid earnings and revenue beat and optimistic outlook, Cisco’s stock surprisingly fell more than 4% in after-hours trading. However, it’s still up more than 60% in the year to date.

It’s likely that investors were put off by a sharp drop in Cisco’s gross margin, which fell to 66.3% from 68.4% in the same period one year ago. Most likely, the drop can be explained by the rising costs of the components used in Cisco’s networking hardware, such as memory chips.

Photo: Fortune GLOBAL FORUM/Flickr