Cisco Shares Drop 8%, But AI Infrastructure Prospects Improve

Cisco Systems shares have taken a hit in recent months, dropping 8% over three months and underperforming the broader Zacks Computer & Technology sector by 5.2 percentage points.

While peers such as Hewlett Packard Enterprise and Arista Networks have seen their shares rise by 28.8% and 17.6%, respectively, Cisco's decline appears to be driven by concerns over margin pressure and the revenue mix.

The company's fourth-quarter fiscal 2026 non-GAAP gross margin declined 210 basis points year-over-year to 66.3%, primarily due to a greater mix of hardware revenue and higher memory costs, partly offset by productivity gains and pricing actions.

Cisco is shipping more hardware into hyperscale and enterprise deployments, but the associated software subscriptions and services are recognized over time, creating a timing difference that can weigh on gross margins as hardware revenue scales faster than recurring revenues.