Cisco Stock Plummets on Gross Margin Fears, But Five Firms Still See Upside

Cisco's stock price plummeted by 7% on Thursday morning after the company released its fiscal Q4 2026 results, which showed a strong beat and raise. However, the market reaction was overshadowed by concerns over gross margin compression due to AI hardware mix.

The company reported non-GAAP EPS of $1.22, beating consensus estimates of $1.17, while revenue reached $17.3 billion, up 18% year-over-year. Cisco's AI infrastructure orders totaled $4 billion in the quarter and $9.3 billion for fiscal 2026.

However, gross margin compression remained a concern, with non-GAAP total gross margin falling to 66.3% from 68.4% a year earlier, and 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.

Despite these concerns, five firms raised their price targets for Cisco stock: Barclays to $123, KeyBanc to $135, Morgan Stanley to $135, Rosenblatt to $165, and Wells Fargo to $150. The bulls argue that near-term margin compression is an acceptable trade for capturing share in a durable, multi-year infrastructure buildout.