Shares of Cisco Systems (CSCO) took a hit, dropping approximately 7% in after-hours trading following the company’s recent quarterly earnings report. This decline comes even as the tech giant outperformed analyst expectations for both revenue and profit, showcasing the inherently cautious stance investors are currently taking.
The earnings report revealed that Cisco had generated revenues of $15.4 billion for the quarter, surpassing the $15.1 billion that analysts had predicted. This represents a 10% year-over-year increase, driven predominantly by significant growth in their networking business. Net income also saw a substantial rise, hitting $3.2 billion compared to $2.4 billion the previous year, underscoring robust demand from both enterprise and cloud customers alike.
However, despite these strong results, Cisco’s stock sank after hours, influenced largely by its revenue guidance for the following quarter, expected to range between $15.4 billion and $15.6 billion. This forecast, while in line with expectations, failed to exceed investor predictions, thereby creating pressure on the stock price as analysts noted this cautious outlook.
AI Orders and New Hardware Fuel Growth
In a significant boost, Cisco disclosed securing $2.1 billion in new AI infrastructure orders, which reflects the growing demand for AI-optimized networking solutions. Key among these new orders is a switch employing Nvidia technology, as well as plans to partner with AMD for a major AI infrastructure initiative in Saudi Arabia.
CEO Chuck Robbins pointed out that while these developments are encouraging, the Saudi venture represents a long-term strategic investment, unlikely to contribute materially to the company’s revenue for fiscal year 2026. The initiative anticipates delivering up to 1 gigawatt of AI computing capacity by 2030, with the initial deployment planned for 100 megawatts. This move positions Cisco to play a pivotal role in national AI infrastructure projects, particularly in regions looking to establish their capabilities in AI beyond the traditional US-centric model.
Hyperscale Cloud Providers Lead the Charge
Much of Cisco’s revenue growth is attributed to its relationships with hyperscale cloud providers, where product orders in this segment grew a staggering 65% year-over-year. Meanwhile, enterprise orders lagged behind with an increase of only 8%, highlighting a disparity in growth dynamics between large-scale cloud operators and traditional enterprise accounts.
Additional segments also displayed mixed results. The security division saw a 4% decrease, weighed down by aging product cycles and a pivot from on-premise solutions to cloud-based offerings. Additionally, service revenue dipped by 1%, and annualized recurring revenue (ARR) grew modestly by just 3%, showing signs of sluggish growth in recurring business channels.
Long-Term Vision and Strategy
Cisco’s approach in Saudi Arabia illustrates a broader vision of supporting national AI initiatives that extend beyond established US hyperscalers. By addressing the identified gap in regional AI infrastructure, Cisco aims to position itself as an essential partner for government-led AI projects, thus widening its role in the global AI landscape.
While short-term market fluctuations may dominate the headlines, Cisco remains optimistic about its strategic investments such as the Saudi initiative, which CEO Robbins views as a supplementary growth avenue rather than a dominating factor in fiscal projections. The company’s commitment seems focused on capitalizing on sovereign AI deployments to enhance its growth trajectory over the coming years.
Bottom Line
Overall, while Cisco’s quarterly earnings reflect a solid performance bolstered by significant AI infrastructure orders and a strong networking division, the tempered guidance and varied performance across different business areas contributed to the notable 7% dip seen in after-hours trading. Investors will be keenly watching Cisco’s execution of its AI initiatives and the demand from hyperscale clouds as pivotal indicators for future growth.
