TLDR
- Cisco reported Q2 earnings of $1.04 per share and $15.3B revenue, beating analyst forecasts
- Shares dropped 5% after-hours as full-year revenue guidance missed Wall Street targets by $2.2B
- Networking division jumped 21% to $8.29B driven by enterprise AI infrastructure spending
- Gross margin of 67.5% disappointed due to rising memory chip costs from global shortage
- New Silicon One G300 AI chip launched as company targets $5B+ in AI orders for fiscal 2026
Cisco Systems posted better-than-expected second-quarter results but shares still fell in extended trading. The market’s reaction came down to one thing: disappointing full-year revenue projections.
The networking equipment maker earned $1.04 per share on an adjusted basis, beating the $1.02 estimate. Revenue of $15.3 billion topped Wall Street’s $15.11 billion forecast.
Those numbers look good on paper. But investors focused on what’s ahead rather than what just happened.
Cisco’s full-year revenue guidance of $61.2 billion to $61.7 billion landed $2.2 billion below analyst expectations of $63.9 billion. That gap sent shares down 5% in after-hours trading.
The networking business drove quarterly performance. Revenue reached $8.29 billion, crushing the $7.9 billion estimate and rising 21% from a year ago. Companies building out AI data centers are buying Cisco’s switches and routers in bulk.
Security revenue came in at $2.02 billion, slightly missing the $2.11 billion target and falling 4% year-over-year. The weakness here didn’t help sentiment.
Memory Chip Shortage Hits Profitability
Margin pressure emerged as a key concern. Adjusted gross margin checked in at 67.5%, below the 68.14% estimate.
The culprit? Memory chip prices. Global AI spending has drained supply of these processors, driving up costs. Cisco’s networking equipment relies heavily on memory chips, so higher prices flow straight to the bottom line.
Barclays analysts said the margin miss surprised them. They suggested the product mix of optics and AI switches might also be weighing on profitability.
CEO Chuck Robbins addressed the issue on the earnings call. He said Cisco has already implemented price increases and is revising customer contracts. The company expects strong demand for systems and optics to continue, but memory costs remain a headwind.
Q3 Guidance Meets Expectations
Third-quarter projections came in roughly on target. Cisco expects earnings of $1.02 to $1.04 per share on revenue of $15.4 billion to $15.6 billion. Analysts had forecast $1.03 per share and $15.19 billion.
Full-year earnings guidance of $4.13 to $4.17 per share matched Street estimates. But that revenue shortfall is what matters to traders right now.
Cisco stock has been a winner lately. Shares gained 37% over the past 12 months and hit a record high in December—the first time since March 2000.
AI Strategy Takes Shape
The recent rally reflects Cisco’s positioning in AI infrastructure. Hardware companies are catching bids while software stocks face disruption concerns.
Raymond James analyst Simon Leopold said tech investors are rotating into AI hardware as a safer play versus software. He maintains a Market Perform rating on the stock.
Cisco announced its Silicon One G300 AI chip this week. William Blair analyst Sebastien Naji wrote that the launch shows Cisco’s ambition to own the entire AI stack from chips to software.
Robbins highlighted Cisco’s infrastructure advantage in the AI buildout. The company now projects AI orders above $5 billion for the current fiscal year, an increase from prior expectations.
That demand is keeping the networking segment humming despite cost pressures. The question for investors is whether margin headwinds and conservative guidance offset the AI tailwinds driving top-line growth in the core business.
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