Cisco Shares Plunge 10% on Margin Concerns and Forward Growth Quality

Cisco Systems' shares dropped by 10% after releasing its Q4 2026 earnings. The decline was largely due to investors' concerns over margin pressure and forward growth quality, despite strong top-line results.

The company reported revenues of $17.3 billion, a year-over-year increase of 18%. Non-GAAP earnings rose by 23% to $1.22 per share. However, non-GAAP gross margin fell 210 basis points to 66.3%, and product gross margin declined by 270 basis points to 64.8%. This was attributed to a higher hardware mix and rising memory costs.

Cisco expects its first-quarter fiscal 2027 gross margin to range between 65-66% and acknowledged that the rapid growth of AI and networking businesses will remain a gross-margin headwind through fiscal 2027. The company also implied growth of roughly 13% between fiscal second and fourth quarters.