Cisco Stock Drops Despite Strong Q4 Earnings and Bullish Guidance

Cisco Systems' Q4 earnings report has left investors with mixed feelings. Despite posting robust numbers, the company's stock price dropped by 7% after the announcement.

The tech giant achieved a significant upside in earnings per share (EPS) and provided optimistic guidance for both Q1 and FY27. Revenue soared by 17.6% year-over-year to $17.25 billion, marking Cisco's highest growth rate in five years and surpassing market expectations.

The standout aspect of the report was Cisco's forecast for substantial growth in FY27, driven by what the company describes as the early stages of a networking supercycle fueled by the rise of agentic AI. Management believes the company is still in the early phases of this cycle, with the growth of agentic AI expanding cybersecurity threats and increasing demand for Cisco's Security and Observability solutions to monitor agent behavior and mitigate risks.

Cisco also reported broad-based demand across all product categories and regions, with total product orders rising by 35% year-over-year in Q4. The company's hyperscale AI infrastructure segment is gaining momentum, booking $4 billion in AI infrastructure orders during Q4, bringing total FY26 orders to $9.3 billion, approximately 4.5 times FY25 levels.

However, the stock's decline may be attributed to high expectations and concerns about the sequential drop in gross margins. Cisco anticipates a Q1 non-GAAP gross margin of 65-66%, slightly lower than Q4, which raises some concerns for investors amid an otherwise strong report.