Cisco Beats Estimates, But Stock Falls on Gross Margin Concerns

Cisco's latest earnings report has left investors perplexed, despite beating revenue and EPS estimates. The company reported fiscal fourth-quarter revenue of $17.25 billion, up 18% year over year, with adjusted earnings reaching $1.22 per share. This beats the consensus estimate of $16.82 billion in revenue and $1.17 per share in EPS.

The forward numbers were stronger still, with Cisco expecting fiscal first-quarter 2027 revenue of $18.0 billion to $18.2 billion, compared to the roughly $16.8 billion consensus estimate. Adjusted EPS is expected between $1.32 and $1.34, well ahead of the approximately $1.16 Wall Street estimate.

The most significant number in the report may be the $4 billion of AI infrastructure orders from hyperscalers in Q4 alone, lifting fiscal 2026 orders to $9.3 billion. This full-year total was roughly 4.5 times fiscal 2025 levels, with about 60% of the orders being for Silicon One-based systems and 40% for optics.

Cisco also won three additional hyperscaler designs during the quarter and has visibility into multiple potential AI design wins over the next six months. However, the company's adjusted gross margin fell to 66.3% from 68.4% a year earlier, with product gross margin dropping to 64.8% from 67.5%. This is causing concern among investors, who are now trying to price Cisco's faster growth engine, which is initially less profitable at the gross-margin level.