Earnings Preview | Cisco (CSCO.US) to Deliver Key “AI Transformation” Report, Networking Business in the Spotlight

According to Zhishang Finance APP, Cisco Systems (CSCO.US), the world’s largest network equipment manufacturer, will release its fiscal Q4 and full-year 2026 financial results after market close on Wednesday, August 12. Driven by the surging wave of AI infrastructure construction, this 40-year-old networking giant is undergoing its most profound growth logic overhaul since the Internet bubble—the AI network orders from hyperscale cloud service providers have been significantly raised from the previously forecasted $5 billion to about $9 billion, nearly doubling. Wall Street analysts expect Cisco’s Q4 revenue to reach $16.85 billion, up 14.9% year-on-year; adjusted EPS of $1.17, up 18.2% year-on-year.

From “Selling Switches” to “Selling AI Networks”: A Transformation Being Realized

Over the past year, Cisco’s stock price has risen more than 64%, far outpacing the S&P 500’s 18.9% gain and the Technology ETF’s 39.3% return. Behind this surge is the market’s re-pricing of Cisco’s AI narrative from “skepticism” to “affirmation.”

In the Q3 financial report on May 13, Cisco reported revenue of $15.84 billion (up 12% year-on-year) and adjusted EPS of $1.06, both exceeding market expectations. But what really triggered the nearly 17% after-hours spike in stock price was the company’s aggressive upward revision of AI infrastructure orders. Cisco raised its fiscal 2026 order forecast for AI infrastructure from hyperscale customers from $5 billion to about $9 billion, an increase of 80%. By the end of Q3, Cisco had already received $5.3 billion in AI infrastructure and hyperscale cloud vendor orders cumulatively.

This jump in orders signifies Cisco’s competitiveness in the AI networking market is moving from “proof of concept” to “large-scale deployment.” Cisco expects to recognize about $4 billion in AI infrastructure revenue in fiscal 2026, with annual revenue guidance raised to $62.8–$63.0 billion.

Q4 Outlook: Networking Business as the Highlight, AI Order Guidance May Exceed Expectations Again

Market expectations for Cisco’s Q4 are already quite robust. Analysts estimate networking business revenue will reach $9.7 billion, up 27.1% year-on-year; total product revenue is expected at $13.06 billion, up 20% year-on-year; service revenue is forecasted at $3.79 billion.

Business Segment Forecasts:

Product Revenue: Estimated at $13.06 billion, up 20% year-on-year;

Networking: Estimated at $9.7 billion, up 27.1% year-on-year—AI-driven data center switching and routing are the biggest growth drivers;

Security: Estimated at $2.04 billion, up 4.7% year-on-year;

Observability: Estimated at $277 million, up 6.9% year-on-year;

Collaboration: Estimated at $1.04 billion, up 0.3% year-on-year;

Service Revenue: Estimated at $3.79 billion, flat year-on-year.

UBS, in its August 4 report, projected that Cisco’s Q4 revenue and earnings will both beat expectations, with networking revenue possibly surpassing its forecast of $9.6 billion, representing 26% year-on-year growth. UBS pointed out that industry research and feedback from hyperscale cloud vendors show that over the past three months, AI infrastructure demand has continued to strengthen, providing upside support for networking revenue and product orders. UBS expects Q4 product orders to be up roughly 29% year-on-year, and believes adjusted EPS could hit $1.19, above the market consensus of $1.17.

Citi on August 6 raised Cisco’s price target from $112 to $139. The bank believes Cisco will benefit from the rapidly expanding AI networking market, and expects Q4 revenue to grow 7% year-on-year to $14.6 billion, and EPS of $0.98 at the upper end of the company’s guidance range.

Fiscal 2027 Outlook: AI Revenue Targeting $6 Billion, Market Anticipates “Positive Surprises in Conservative Guidance”

For the upcoming fiscal 2027, market focus has shifted from Q4 figures to full-year guidance. Cisco management typically provides conservative guidance and raises it progressively during the year, a pattern the market expects will continue in the new fiscal year.

UBS expects Cisco to issue fiscal 2027 revenue guidance of $68–69 billion, driven by over $2 billion in incremental AI revenue, pushing total AI revenue beyond $6 billion. UBS also projects adjusted EPS guidance for fiscal 2027 at $4.78–$4.84, roughly in line with the market consensus.

Previously, during the Q3 earnings call, Cisco CFO Mark Patterson made it clear that having at least $6 billion in AI revenue from hyperscale customers in fiscal 2027 would be “reasonable.” This means AI revenue would grow another 50% on top of fiscal 2026’s $4 billion base.

Morningstar, in its August 4 report, gave an even more aggressive forecast: Cisco’s AI revenue could reach $8 billion in fiscal 2027, far higher than management’s current $6 billion guidance. Morningstar analysts believe that Cisco’s traditionally conservative guidance, which is usually upgraded throughout the year, means there is significant upside potential for AI revenue to exceed expectations.

At the AI product level, Cisco launched the Silicon One G300 switch chip in February this year, based on 3nm process technology, offering 102.4Tbps switching performance, specifically designed for AI clusters. The G300-driven N9000 and 8000 series systems are scheduled to start shipping in the second half of 2026. This product, a direct competitor to Broadcom Tomahawk 6 series, is seen as a critical move for Cisco to establish technical leadership in AI network chips.

Security Business: The “Silent Variable” More Critical Than AI

While the AI narrative dominates headlines, a somewhat overlooked business segment is becoming the key variable for assessing Cisco’s fundamentals.

Challenges for the security segment: Cisco’s roughly $28 billion acquisition of Splunk in 2024 means customers are shifting from upfront license deals to amortizable cloud subscriptions, which continues to weigh on current revenue. The decline of legacy security products is also still offsetting growth from new product lines.

Improvement timeline: Cisco executives have given an unusually specific timetable—by the second quarter of fiscal 2027, comparables will “normalize,” and the security core business is “already seeing some improvement.” CEO Chuck Robbins stated in May that organic security revenue should deliver “close to double-digit” growth by the end of this fiscal year.

The August 12 earnings report will be a key juncture to test this promise. As TIKR analysts put it: “The reported revenue hasn’t shown any growth yet, which is why any increase in this segment’s fourth-quarter data would turn the story from management guidance to actual evidence.”

Risk Warnings: Gross Margin Pressure and Tariff Uncertainty

Cisco’s AI transformation is not without headwinds. UBS expects Q4 component cost increases will limit gross margin expansion to about 66%. Citi, in its August 7 report, warned that Cisco’s stock appreciation may be limited, as Wall Street’s expectations for campus device upgrades “seem somewhat excessive.”

Tariff policy is another source of uncertainty for Cisco. During the Q3 earnings call, Patterson stated that performance guidance assumes current tariff policies will remain in effect through the end of 2026, and that the company will continue to rely on its supply chain team to help offset tariff impacts where appropriate.

Additionally, in May, Cisco announced the layoff of nearly 4,000 employees (about 5% of its global workforce) as part of a restructuring plan to shift investment towards artificial intelligence and related growth areas. While the market interpreted this restructuring as a positive signal, it also reflects the transformational pressures facing legacy businesses.