Cisco Systems Inc. (NASDAQ: CSCO) reported fourth-quarter fiscal 2026 revenue of $17.252 billion, beating analyst estimates of $16.823 billion by 2.55%. This represents a 17.58% year-over-year increase from $14.673 billion in the same period last year. Adjusted earnings per share (EPS) came in at $1.22, exceeding consensus expectations of $1.17 by 4.27%.

Despite the strong financial results, shares of Cisco tanked in early trading on Thursday, declining 8.69% to $113.12. The sell-off followed analyst notes highlighting that while top-line growth was robust, gross margins remained static and could contract in the first half of fiscal 2027 due to a mix shift toward networking hardware.

Competitive Wins and Enterprise AI Momentum

CEO Chuck Robbins highlighted a "networking supercycle" underway, noting that companies increasingly view AI readiness and cybersecurity as essential spending. In a rare disclosure of competitive success, Cisco highlighted a large enterprise deal where it displaced both a networking and a firewall competitor. A leading U.S. global bank placed an order for 1,000 Cisco data center smart switches, transitioning to a secure networking architecture.

Robbins noted that Nexus switch orders tagged for AI deployments were up more than 85% sequentially. During the conference call, leadership detailed that the company secured $4 billion in hyperscaler AI infrastructure orders during the quarter, bringing fiscal 2026 orders to $9.3 billion. Total product orders surged 35% year-over-year, with hyperscaler orders growing at a triple-digit rate.

Price Hikes and Margin Dynamics

CFO Mark Patterson revealed that Cisco raised prices on parts of its hardware lineup in fiscal 2026, contributing roughly four to five percentage points of growth in ex-webscale orders. However, analyst Mike Genovese of Rosenblatt Securities noted that while gross margin is projected to contract by 200-300 basis points (bps) in the first half of fiscal 2027, operating margins could remain around 35% given operating expense leverage.

Adjusted gross margin for the quarter stood at 66.3%, while adjusted operating margin was 35.9%. Patterson stated that price increases are "certainly a last resort" and are narrowly targeted at hardware products with heavier memory utilization.

Raised Guidance for Fiscal 2027

Cisco significantly raised its outlook for the upcoming fiscal year. For fiscal first-quarter 2027, the company expects revenue between $18 billion and $18.2 billion, well above estimates of $16.8 billion. Adjusted earnings for the quarter are projected at $1.32 to $1.34 per share, versus estimates of $1.16.

For the full fiscal year 2027, Cisco guided for revenue of $72.2 billion to $73.4 billion, surpassing analyst estimates of $68.69 billion. Full-year adjusted earnings are expected to be $5.05 to $5.11 per share, compared to estimates of $4.80. Additionally, Cisco projected full-year FY2027 GAAP EPS of $4.00 to $4.06, beating the analyst estimate of $3.73.

Analyst Views and Market Reaction

Major banks raised their price targets following the earnings release. Rosenblatt Securities analyst Mike Genovese reaffirmed a Buy rating, raising the price target from $150 to $165. KeyBanc Capital Markets analyst Brandon Nispel reiterated an Overweight rating, lifting the price target from $130 to $135. BofA Securities analyst Tal Liani maintained a Buy rating and price target of $150.

Liani highlighted that ex-Hyperscaler order growth improved sequentially from 19% YoY in Q3 to 25% in Q4, while orders from the top four Hyperscalers grew over 100%. Genovese noted that Cisco’s guidance suggests decelerating revenue growth later in fiscal 2027, which "appears conservative, leaving ample room for potential upside in subsequent quarters."

What the Numbers Show

The divergence between Cisco’s operational performance and market reaction highlights investor sensitivity to margin dynamics amidst high AI demand. While revenue grew 17.58% YoY and product orders surged 35%, the static gross margin of 66.3% and projected contraction of 200-300 bps in H1 FY27 suggest pricing power may be offsetting volume gains rather than expanding profitability. The fact that price hikes contributed 4-5 percentage points to ex-webscale order growth indicates that a portion of the top-line expansion is driven by favorable pricing in the high-memory hardware segment, rather than pure volume acceleration.

Cisco Systems (NASDAQ: CSCO) has updated its first-quarter financial guidance to include GAAP earnings per share (EPS) projections of $1.08 to $1.10. This outlook surpasses the consensus analyst estimate of $0.90, indicating stronger-than-expected profitability on a generally accepted accounting principles basis.

The company previously highlighted adjusted EPS guidance in the range of $1.32 to $1.34, which significantly exceeds the consensus estimate of $1.16. Quarterly sales are forecast between $18.000 billion and $18.200 billion, beating the expected revenue of $16.797 billion.

What the Numbers Show

The inclusion of GAAP EPS guidance provides a clearer picture of the company’s core earnings power, excluding non-recurring items. The lower end of the GAAP range ($1.08) represents a 20% beat over the $0.90 estimate, while the upper bound ($1.10) implies a 22% outperformance.

Combined with the adjusted EPS upside of approximately 14-15%, the guidance suggests robust operational efficiency and demand. The revenue potential upside of up to 8% against forecasts further highlights strong anticipated market conditions for the quarter.