Cisco Shares Plunge on Margin Pressure but AI Growth Outlook Brightens

Cisco Systems shares have taken a hit over the past three months, falling 7.8% underperforming the broader Zacks Computer & Technology sector's decline of 2.6%. The company has been struggling with margin pressure and revenue mix issues, which are weighing on its stock price.

Cisco attributed its declining gross margins to a greater mix of hardware revenue and higher memory costs. However, the company expects its non-GAAP gross margin to range from 65-66% in the first quarter of fiscal 2027, indicating continued pressure. The rapid expansion of AI infrastructure is contributing to this issue as the company ships more hardware into hyperscale and enterprise deployments.

Despite these challenges, Cisco's position in AI infrastructure remains strong, with hyperscaler AI infrastructure orders reaching $9.3 billion in fiscal 2026, a 4.5 times increase from the previous year. The company expects this figure to jump to $7.5 billion in fiscal 2027.