Cisco Q2 Earnings Exceed Expectations, but Market Response is Negative

Cisco's Q2 earnings report exceeded Wall Street expectations, but the market responded negatively. Despite this, CEO Charles Robbins expressed confidence in the company's growth prospects, citing a multi-year networking upgrade cycle and broad-based demand for AI-driven infrastructure.

The strong sales were driven by hyperscale cloud providers and enterprise customers, as well as robust product order momentum across geographies and segments. However, management acknowledged that margin headwinds from higher hardware mix and memory costs impacted gross margins, despite overall operating efficiency gains.

Cisco's revenue grew 17.6% year-over-year to $17.25 billion, beating analyst estimates of $16.83 billion. Adjusted EPS also beat expectations at $1.22. The company's annual recurring revenue reached $32.1 billion, with a 3.2% year-on-year growth rate.

Analysts asked several questions during the earnings call, including about the sustainability of the networking super cycle and the impact of AI on margins. Management reassured investors that they are only at the beginning of this super cycle and emphasized the high profitability of incremental AI business.