Cisco's AI Push Boosts Revenue But Crushes Margins

Cisco Systems reported its fiscal fourth-quarter results on Wednesday, August 12, and the stock immediately dropped 8.40% to $113.47 on Thursday.

The company beat expectations with revenue of $17.25 billion, up 18% from a year earlier, and non-GAAP earnings per share (EPS) came in at $1.22, beating consensus by 4.3%. However, the gross margin declined to 66.3%, down from 68.4% a year ago.

The decline in gross margin is due to Cisco's increasing sales of hardware into hyperscaler data centers, which carries a lower margin profile than the company's historical campus switching and software business.

Cisco's management guided first-quarter fiscal 2027 gross margin to 65% to 66%, below the current quarter's 66.3%. This guidance suggests that the compression in gross margin is not a one-time event, but rather a trend that will continue as AI hardware scales into the revenue mix.