CSCO Q4 Deep Dive: AI Infrastructure Drives Growth Amid Margin Pressures and Cautious Market Response

Networking technology giant Cisco (NASDAQ:CSCO) reported Q4 CY2025 results topping the market’s revenue expectations, with sales up 9.7% year on year to $15.35 billion. Guidance for next quarter’s revenue was optimistic at $15.5 billion at the midpoint, 2.2% above analysts’ estimates. Its non-GAAP profit of $1.04 per share was 1.7% above analysts’ consensus estimates.

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StockStory’s Take

Cisco’s Q4 results (which align with the company’s fiscal Q2 2026, corresponding to the calendar fourth quarter of 2025) saw robust year-over-year revenue growth, led by strong demand for AI infrastructure and networking solutions. Management highlighted that product orders grew in the double digits across all geographies and customer segments, pointing to particularly high momentum from hyperscale cloud providers. CEO Charles Robbins credited the performance to a surge in AI infrastructure orders and broad-based uptake of next-generation networking hardware, stating, “Our strong first half demonstrates both the power of our portfolio and the fundamental role we play in this once-in-a-generation transition.” However, executives also acknowledged rising memory costs that pressured gross margins during the quarter.

Looking ahead, Cisco’s raised guidance reflects management’s belief that continued investment in AI-native networking, expanded partnerships, and new product launches will drive growth. Robbins emphasized ongoing momentum in AI orders and an expanding pipeline in enterprise and sovereign cloud markets, but also noted that rising component prices and a shift toward cloud subscriptions in security could create near-term margin headwinds. CFO Mark Patterson stated, “We are focused on financial discipline and profitability, growing EPS faster than revenue, even as we navigate industry-wide cost challenges.”

Key Insights from Management’s Remarks

Management attributed the strong quarter to accelerating AI infrastructure demand, rapid adoption of advanced networking products, and a disciplined approach to cost control despite ongoing input cost inflation.

• AI infrastructure surge: Cisco’s AI infrastructure orders from hyperscalers reached $2.1 billion in Q2 FY26 (calendar Q4 2025), marking a rapid acceleration and signaling heightened demand for Silicon One-powered systems and optics. Management indicated this momentum is driving a multiyear growth opportunity, especially as new products like the G300 chip and advanced pluggable optics are ramped up.
• Campus networking refresh: Demand for next-generation campus networking solutions, including switching, routing, and wireless products, is growing faster than in previous cycles. Robbins described this as the “top of the first inning” in a multiyear upgrade cycle, emphasizing it is the very start, fueled by a large installed base approaching end of support.
• Security portfolio transition: While new and refreshed security products such as Secure Access and Hypershield saw significant customer uptake, the overall security segment was held back by a decline in legacy offerings and the ongoing shift of Splunk from on-premise to cloud subscriptions, which temporarily drags on reported revenue.
• Geographic and customer diversity: Product order growth was broad-based, with the Americas, EMEA (Europe, Middle East, Africa), and APJC (Asia-Pacific, Japan, China) all posting double-digit increases. Orders from service provider and cloud customers stood out, rising 65% year over year.
• Margin pressures from memory costs: Higher memory component prices adversely impacted gross margins, prompting proactive pricing actions and renegotiation of terms with partners. Patterson explained that while these cost headwinds are industry-wide, Cisco’s scale and supply chain management help mitigate the impact relative to peers.

Drivers of Future Performance

Cisco expects AI infrastructure demand, the campus networking refresh cycle, and ongoing product innovation to drive revenue and margin performance, while elevated component costs and security segment transitions present challenges.

• AI and cloud momentum: Management projects continued strength in AI-related infrastructure, with a sizable pipeline from hyperscalers and new opportunities in enterprise, sovereign, and neocloud markets. The joint venture with AMD and HUMAIN to deliver large-scale AI infrastructure is anticipated to support longer-term growth.
• Margin management strategies: To offset rising memory and component costs, Cisco is implementing price increases, revising contracts, and leveraging supply chain scale. Patterson noted a focus on growing non-GAAP EPS faster than revenue, with expectations that software growth and improved product mix may help margins recover over time.
• Security and software transitions: The ongoing move from perpetual licenses to cloud-based subscriptions in the security portfolio, particularly within Splunk, is expected to weigh on near-term revenue but position Cisco for increased adoption and recurring revenue streams in future periods.

Catalysts in Upcoming Quarters

In the next few quarters, the StockStory team will be watching (1) the pace of AI infrastructure order conversion into recognized revenue, (2) evidence of sustained demand for next-generation campus networking solutions as customers upgrade legacy equipment, and (3) signs of stabilization or renewed growth in the security business as the Splunk cloud transition matures. Additionally, we will track Cisco’s ability to manage margin pressures from elevated component costs and the effectiveness of recent product launches in driving incremental growth.

Cisco currently trades at $79.05, down from $85.59 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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