Cisco Stock Drops on Gross Margin Fears Despite Beat-and-Raise Earnings

Cisco Systems' stock price plummeted by 7% to $115 on Thursday morning after the company's fiscal Q4 2026 results revealed a gross margin compression tied to AI hardware mix.

The drop partly unwinds Cisco's 63% year-to-date run, but five firms raised their price targets anyway. Barclays' Tim Long lifted his target to $123 from $121, citing security upside and enterprise spending strength while flagging AI dilution risk in FY2027 product gross margin.

Cisco delivered a beat and raise with non-GAAP EPS coming in at $1.22 against $1.17 consensus, while revenue reached $17.3 billion (up 18% year over year). The company's AI infrastructure orders totaled $4 billion in the quarter and $9.3 billion for fiscal 2026.

Cisco's non-GAAP total gross margin fell to 66.3% from 68.4% a year earlier, with product non-GAAP gross margin dropping to 64.8% from 67.5%. Management guided Q1 FY2027 gross margin to 65% to 66%, signaling continued compression as lower-margin AI hardware scales into the mix.