Cisco Earnings: AI Momentum Accelerates, and Campus Demand Stays Strong

Key Morningstar Metrics for Cisco Systems

• Fair Value Estimate
  : $115.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Cisco Systems’ Earnings

Cisco Systems’ CSCO fourth-quarter results topped guidance, as revenue rose 18% year over year to $17.3 billion. Fiscal 2027 guidance implies another year of double-digit revenue and earnings growth, with hyperscaler artificial intelligence revenue expected to be $7.5 billion, up from $4.0 billion this year.

Why it matters: Cisco is converting AI demand into revenue faster than anticipated, while its momentum across campus and enterprise remains healthy. We believe Cisco has a durable, sticky position in AI networking and optics, structurally raising its growth profile.

• The company booked more AI infrastructure business than what it recognized as revenue, leaving a healthy backlog that should start flowing in the coming year. Specifically, AI orders reached $9.3 billion in fiscal 2026, with Cisco having converted roughly $4.0 billion into revenue.
• Campus orders grew 20%, as customers refreshed aging infrastructure. We expect AI workload growth to continue supporting refresh-cycle demand running into the next year. Encouragingly, we expect the cycle to remain a meaningful growth driver even as AI becomes a larger piece of Cisco.

The bottom line: The quarter reinforces our view that AI is becoming a strong tailwind, adding to the healthy networking opportunity. We maintain our $115 fair value estimate for wide-moat Cisco, and after shares moved slightly lower on the release, we view the stock as fairly valued.

• Our valuation implies Cisco being worth 20 times our estimate of fiscal 2028 earnings. This is at the high end of the firm’s historical range, but we believe a higher multiple is warranted, given structurally improved long-term growth on higher AI and campus forecasts.
• Profitability remains strong despite mix pressures, with non-GAAP gross margins and operating margins of 66.3% and 35.9%, respectively. We expect gross margin pressure to persist into fiscal 2027, but to be offset by operating leverage as hyperscaler volumes scale with minimal incremental expenses.