CSCO Q1 Earnings Call: AI Demand and New Partnerships Drive Strategic Shift

Networking technology giant Cisco (NASDAQ:CSCO) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 11.4% year on year to $14.15 billion. Its non-GAAP EPS of $0.96 per share was 4.6% above analysts’ consensus estimates.

Is now the time to buy CSCO? Find out in our full research report (it’s free).

StockStory’s Take

Cisco’s first quarter highlighted significant momentum in its AI and networking businesses, fueled by double-digit growth in product orders and strong performance in key segments like enterprise routing and campus switching. CEO Chuck Robbins emphasized the impact of accelerated product innovation and the company’s ability to deliver large-scale AI infrastructure, noting, “We received AI infrastructure orders from web-scale customers in excess of $600 million in Q1, bringing our year-to-date total to well over $1 billion.” Management credited the quarter’s growth to robust demand across web-scale, enterprise, and public sector customers, as well as ongoing adoption of new products like WiFi 7 and industrial IoT offerings. Additionally, the integration of Splunk contributed to security segment growth, with notable wins in the financial services sector.

Looking ahead, Cisco’s leadership pointed to a multi-year runway for AI-related demand and expansion into sovereign cloud opportunities as key drivers of its forward guidance. Robbins outlined the importance of partnerships, such as the recent collaboration with NVIDIA and new initiatives in the Middle East, stating, “We believe the AI opportunity for us is a strong one…we play across the full stack.” CFO Scott Herren highlighted ongoing tariff uncertainty and the impact of supply chain agility on gross margins, while also noting that the ramp-up of enterprise AI deployments and new product launches are expected to support revenue and margin performance. Management’s outlook is shaped by expectations of continued demand for AI infrastructure, heightened security needs, and the transition to more recurring, software-driven revenue streams.

Key Insights from Management’s Remarks

Cisco’s first quarter results were shaped by heightened demand for AI infrastructure, progress in security and software, and the continued shift toward recurring revenue. Management also discussed organizational changes and new strategic partnerships.

• AI infrastructure order momentum: Cisco surpassed its annual AI order target early, with over $600 million in web-scale AI infrastructure orders during the quarter. Management attributed this to strong demand from large data center customers and emphasized that these orders are non-linear, depending on customer deployment schedules and Cisco’s delivery capacity.
• Security segment acceleration: The integration of Splunk drove high double-digit growth in security orders, highlighted by a major multi-year deal with a financial services customer. Cisco’s new security products, including Secure Access, XDR, and Hypershield, collectively added over 370 new customers, with many bundling security directly into network hardware.
• Recurring revenue focus: The company reported steady gains in annual recurring revenue and product ARR, with subscription revenue now comprising more than half of total revenue. This ongoing transition to software and services is intended to improve business predictability and resilience.
• Product innovation pipeline: Cisco announced several advancements, including the launch of a quantum network prototype and new AI-driven security solutions. The company also highlighted its partnership with NVIDIA to create unified network architectures for AI workloads, aiming to simplify deployment and enhance security for enterprise customers.
• Leadership changes: CFO Scott Herren announced his retirement, with Chief Strategy Officer Mark Patterson set to take over. Jeetu Patel was promoted to President and Chief Product Officer, reflecting a renewed focus on product strategy and accelerated innovation. Additionally, Kevin Weil, Chief Product Officer of OpenAI, joined the board of directors.

Drivers of Future Performance

Cisco expects future performance to be driven by sustained AI infrastructure investment, an expanding partner ecosystem, and increased focus on software-based solutions.

• Ongoing AI demand: Management believes that the global expansion of AI, including sovereign cloud initiatives and enterprise AI deployments, will provide a multi-year growth opportunity. Cisco anticipates demand from both web-scale and enterprise customers as AI applications require advanced networking and security.
• Supply chain and tariff management: The company faces ongoing uncertainty around tariffs, particularly after the July 9 pause ends. Cisco’s ability to leverage its supply chain scale and flexibility is expected to mitigate some cost pressures, though management cautions that tariffs could impact gross margins in the near term.
• Recurring revenue and new solutions: Cisco is prioritizing the growth of its subscription-based offerings and accelerating the rollout of new products, such as the WiFi 7 portfolio and AI-powered security tools. These initiatives are intended to drive more predictable revenue streams and capitalize on evolving customer needs.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the pace at which AI infrastructure orders convert into revenue, (2) execution on new partnerships and sovereign cloud deals such as the HUMAIN initiative, and (3) the rollout and adoption rates for Cisco’s latest security and networking products. Progress on recurring revenue growth and the impact of tariff changes on margins will also be important indicators to watch.

Cisco currently trades at a forward P/E ratio of 16.5×. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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