Cisco Stock Boosted by AI Sales and Refresh Cycle

Cisco Systems' stock has experienced significant growth over the past year, returning about 64% compared to roughly 21% for the S&P 500. This surge is largely attributed to the company's sales of switches and optics to hyperscalers for AI purposes.

While AI infrastructure revenue accounts for approximately 6% of Cisco's total revenue, the orders taken from hyperscalers have run ahead of this figure, with $9.3 billion in AI orders across fiscal 2026. Management expects $7.5 billion in AI infrastructure revenue in fiscal 2027.

However, a closer look reveals that Cisco's older businesses also started growing again, contributing to the company's overall growth. Revenue increased by 11.8% over the trailing twelve months, exceeding its three-year average of 3.8%. Campus gear played a significant role in this growth, with switching, routing, and wireless products all being refreshed simultaneously, a phenomenon that management claims has not occurred before.

Wi-Fi 7 made up more than half of wireless orders in the fourth quarter of fiscal 2026, while price increases added around five points to the 18% revenue growth reported in the same period. Management aims to pass on only what is necessary, as it has reduced memory requirements for its Wi-Fi 7 gear by half.

Looking ahead, management has guided fiscal 2027 revenue growth of approximately 15%. If we strip out the $7.5 billion in hyperscale AI revenue, the CFO estimates the rest of the business to be near 10%, aligning with the stock's current valuation. Gross margin is expected to sit below the 66.3% non-GAAP margin of fiscal Q4 2026 as fiscal 2027 progresses, while non-GAAP operating margin is guided towards a company high of around 35%.