Cisco Systems is the latest tech hardware company to report strong financial results driven by ongoing artificial-intelligence demand. That wasn't enough to boost the stock, though.
On Wednesday, Cisco reported adjusted earnings of $1.22 a share on revenue of $17.3 billion for the fiscal fourth quarter ended on July 25. Analysts surveyed by FactSet were expecting earnings of $1.17 per share on revenue of $16.8 billion.
Cisco's networking segment -- which includes gear used in AI data centers -- has grown as enterprise demand for AI infrastructure continues to rise. Networking revenue was $9.79 billion in the period, higher than the $9.66 billion that analysts expected and marking a 28% increase from last year.
"The quarter reinforces our view that AI is becoming a strong tailwind, adding to the healthy networking opportunity," Morningstar analyst William Kerwin wrote on Thursday.
When reporting third-quarter earnings in May, the company said it had taken $5.3 billion in AI infrastructure orders from hyperscalers so far in the fiscal year, which led Cisco to then raise its full-year expectations for orders to $9 billion, up from $5 billion. On Wednesday, Cisco reported fiscal 2026 AI infrastructure orders were $9.3 billion, which was ahead of those estimates.
Cisco expects total fiscal 2027 earnings to be between $5.05 and $5.11 a share on revenue between $72.2 billion and $73.4 billion. That's ahead of analyst expectations for full-year earnings of $4.83 a share on revenue of $69.1 billion.
"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," CEO Chuck Robbins said in the earnings release.
Despite these better-than-expected results, the networking company's shares were falling 8.8% to $112.94 and were on pace for their largest percentage decrease since Feb. 12, 2026, according to Dow Jones Market Data. Cisco stock was also the worst performer in the Dow Jones Industrial Average on Thursday, while the index gained 0.4%.
A decline in gross margins was spooking shareholders. Total gross margin for the quarter was 66.3%, a drop from 68.4% last year. This was partially due to the rising cost of components used in AI hardware, like memory.
UBS analyst David Vogt wrote in a research note that even though investors are reacting negatively to a gross margin decline, he expects fiscal 2027 operating margins to expand, which could in turn lead to profits growing faster than revenue.
"We therefore see any share-price weakness as an attractive buying opportunity, as we expect the mkt to ultimately underwrite growth 500 basis points above initial guidance," Vogt wrote. He raised his price target on Cisco to $138 from $132 while maintaining a Buy rating on the stock.
The bar was also set very high coming into earnings. Shares of Cisco have gained 47% this year as demand for the hardware used to power AI climbs. Cisco isn't the only beneficiary of the ongoing trend. Super Micro Computer reported better-than-expected quarterly earnings and gave strong fiscal-year revenue guidance on Tuesday night, thanks to strong demand for its server equipment.
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