Cisco's Q4 Earnings Beat Estimates, Strong Networking Aids Revenues

Cisco Systems CSCO reported fourth-quarter fiscal 2026 non-GAAP earnings of $1.22 per share, up 23% year over year and beating the Zacks Consensus Estimate by 4.27%. Broad networking demand and operating leverage supported the year-over-year growth.

Revenues increased 18% year over year to $17.252 billion, topping the consensus mark by 2.36%. Product revenues increased 24% year over year.

Product orders increased 35% year over year (up 25% excluding hyperscalers), while annualized recurring revenue (ARR) reached $32.1 billion, up 3% year over year, highlighting broad demand.
 

Remaining performance obligations (RPO) totaled $46.7 billion, up 7% year over year, with product RPO rising 9%, while services RPO increased 6% year over year. Total software revenues increased 11% year over year to $6.183 billion, while subscription revenues represented 48% of total revenues.

CSCO’s Networking Growth Accelerates

Networking revenues surged 28% year over year to $9.791 billion. The increase reflected triple-digit growth in AI infrastructure, double-digit growth in data center switching and continued growth in campus networking.

Networking product orders jumped 40%, marking the eighth consecutive quarter of double-digit growth. Campus networking orders advanced 20%, while data center networking orders increased more than 35%. Wi-Fi 7 accounted for more than half of total wireless orders in the quarter.

Hyperscaler AI infrastructure orders totaled $4 billion in the fourth quarter, taking fiscal 2026 orders to $9.3 billion, roughly 4.5 times the fiscal 2025 level. The fiscal-year mix was approximately 60% Silicon One-based systems and 40% optics.

Cisco also secured three new hyperscaler design wins, covering P200-powered scale-across systems, G200-powered scale-out systems and an optical line system. AI infrastructure orders from neocloud, sovereign and enterprise customers exceeded $400 million in the quarter and totaled $1.3 billion for fiscal 2026.

CSCO Security and Software Trends Improve

Security revenues increased 14% year over year to $2.226 billion. The entire security portfolio, including Splunk, recorded double-digit order growth. Firewall orders increased more than 30%, while more than 1,500 customers purchased newer offerings such as Secure Access, XDR, Hypershield and AI Defense during the quarter.

Collaboration revenues advanced 12% to $1.167 billion, while Observability revenues rose 6% to $275 million. Services revenues were essentially flat at $3.793 billion.

Cisco Balances Margin Pressure With Leverage

Non-GAAP gross margin was 66.3%, down 210 basis points (bps) year over year. Product gross margin fell 270 bps to 64.8%, primarily due to a higher hardware mix and memory costs, partly offset by productivity improvements and price increases. Services gross margin improved 80 bps to 71.6%.

Non-GAAP operating expenses were $5.243 billion, up 5%, but declined to 30.4% of revenues from 34.1% a year earlier. 

Consequently, non-GAAP operating margin expanded to 35.9% from 34.3%, demonstrating operating leverage despite gross-margin pressure.

CSCO Cash Flow and Recurring Metrics

Cash, cash equivalents and investments totaled $15.918 billion at the end of the fiscal fourth quarter compared with $16.6 billion at the end of the third quarter of fiscal 2026.

Operating cash flow increased 27% year over year to $5.386 billion. 

CSCO returned $3.161 billion to shareholders through $1.502 billion of share repurchases and $1.659 billion of dividends. The current program has $8.1 billion under remaining authorization.

Cisco Sets Strong Fiscal 2027 Outlook

For the first quarter of fiscal 2027, Cisco expects revenues between $18 billion and $18.2 billion. Non-GAAP earnings are projected at $1.32-$1.34 per share, with non-GAAP gross margin of 65-66% and operating margin of 35.5-36.5%.

For fiscal 2027, Cisco projects revenues of $72.2-$73.4 billion and non-GAAP earnings of $5.05-$5.11 per share. 

Hyperscaler AI infrastructure revenues are expected to reach $7.5 billion, up from approximately $4 billion in fiscal 2026.

Zacks Rank & Stocks to Consider

Cisco currently has a Zacks Rank #3 (Hold). 

Some better-ranked stocks in the broader Zacks Computer and Technology sector include Sandisk SNDK, Teradyne TER, and Microchip MCHP. Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

Sandisk, Teradyne and Microchip shares have jumped 474.7%, 111.2% and 24.9% year to date, respectively. Long-term earnings growth rate for Sandisk, Teradyne and Microchip is currently pegged at 48.16%, 54.38% and 45.48%, respectively.

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