Cisco Stock Falls 7% Amid Margin Concerns Despite Strong AI Outlook

Cisco Systems Inc., the networking equipment maker, saw its stock fall about 7% in premarket trading despite reporting results and outlook that exceeded Wall Street expectations. The disconnect appears to be around margins.

Morgan Stanley noted that Cisco is experiencing broad strength across enterprise and hyperscaler AI demand, but a heavier hardware mix could pressure gross margins by roughly 200 basis points in fiscal 2027. This would mean a significant reduction in profit margins for the company.

On the other hand, Morgan Stanley expects Cisco's hyperscaler AI revenue to reach about $7.5 billion next year, nearly doubling from current levels. Wells Fargo also highlighted momentum in networking and enterprise AI adoption, as well as Cisco's campus upgrade cycle. The firm raised its price target to $150 from $130.

Cisco's fiscal 2027 revenue guidance of $72.2 billion to $73.4 billion also topped expectations, while networking orders remain strong. For investors, the debate is increasingly about profitability rather than demand.