Cisco (CSCO) Shares Tumble After Hours Despite Crushing Q4 Earnings Expectations

Key Takeaways

• Cisco delivered Q4 adjusted earnings of $1.22 per share on $17.3 billion in revenue, surpassing Wall Street’s forecast of $1.17 EPS and $16.8 billion in revenue
• The networking division generated $9.79 billion in revenue, up 28% compared to last year and exceeding the $9.66 billion analyst consensus
• AI infrastructure orders for the full fiscal year 2026 reached a record $9.3 billion, surpassing the company’s upgraded $9 billion forecast
• Fiscal 2027 revenue outlook of $72.2-$73.4 billion and EPS guidance of $5.05-$5.11 significantly exceeded analyst projections
• Despite the positive results, CSCO shares declined approximately 4% in extended trading, likely due to gross margin compression to 66.3% from 68.4% year-over-year

Cisco Systems delivered fiscal fourth-quarter earnings that handily surpassed analyst forecasts across revenue and profit metrics, yet shares retreated in after-hours trading despite the impressive performance.

Cisco Systems, Inc., CSCO

The networking giant posted adjusted profits of $1.22 per share against revenue of $17.3 billion. Wall Street consensus had called for earnings of $1.17 per share on $16.8 billion in sales.

Top-line growth accelerated 18% from the prior-year period. Product revenue specifically soared 24% on a year-over-year basis.

The company’s networking business proved to be a standout performer, generating $9.79 billion in the quarter. This represented a robust 28% year-over-year expansion and exceeded the Street’s $9.66 billion projection.

AI infrastructure demand remained exceptionally strong, with Cisco securing $4 billion in related orders during Q4 alone. This brought the company’s total AI infrastructure orders for fiscal year 2026 to $9.3 billion, exceeding its own elevated forecast of $9 billion.

To put this in perspective, Cisco initially set a $5 billion AI order target when the fiscal year began. Management increased this target to $9 billion in May, yet still managed to surpass that upgraded benchmark.

Overall product orders climbed an impressive 35% during the three-month period.

Fiscal 2027 Outlook Significantly Exceeds Street Expectations

Looking ahead to fiscal 2027, Cisco provided revenue guidance ranging from $72.2 billion to $73.4 billion. This considerably outpaced the analyst consensus estimate of approximately $69.1 billion.

The company’s non-GAAP earnings per share forecast of $5.05 to $5.11 similarly beat Wall Street’s $4.83 consensus projection.

Operating cash flow strengthened 27% year-over-year to $5.4 billion. The networking leader distributed $3.2 billion back to shareholders through a combination of $1.7 billion in dividend payments and $1.5 billion in stock repurchases.

Market Reaction: What Triggered the Decline?

Notwithstanding the comprehensive earnings beat and strong guidance, CSCO shares retreated approximately 4% in after-hours trading following an initial positive reaction.

Margin pressure appears to be the primary concern for investors. Overall gross margin contracted to 66.3%, down from 68.4% in the comparable year-ago quarter. Escalating costs associated with AI hardware components, particularly memory chips, likely contributed to this compression.

The stock had also appreciated more than 61% year-to-date entering the earnings announcement, potentially creating elevated expectations that proved difficult to maintain.

CEO Chuck Robbins said: “With the breadth and depth of our portfolio and our competitive differentiation in secure networking, Cisco is well positioned to support our customers however or wherever they decide to deploy AI.”

During the quarter, Cisco finalized the acquisitions of Galileo Technologies and Astrix Securities, bolstering its capabilities in network security and automated observability solutions.

As of the reporting date, CSCO stock has climbed more than 50% year-to-date.

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