Cisco says AI infrastructure sales will top $9 billion this year, but margins are shrinking

Cisco Systems (CSCO) reported fiscal first-quarter revenue of $18.5 billion, up 24% from a year earlier, and raised its full-year forecast after the close Thursday. According to its 8-K on SEC EDGAR, non-GAAP earnings were $1.40 a share, up 40%, and GAAP earnings were $1.14, up 58%. CNBC reported the shares rose in extended trading and that results topped LSEG estimates. The stock closed at $102.01 before the report, according to Yahoo Finance data.

What Cisco reported

Product revenue rose 32% and services revenue 1%. Inside products, Networking grew 43%, Security 7%, Collaboration 8% and Observability 2%. By region, the Americas grew 28%, EMEA 18% and Asia-Pacific, Japan and China 21%. Cisco raised its expectation for AI infrastructure revenue from hyperscalers to $9 billion in fiscal 2027, "more than double" fiscal 2026.

The number behind the number: margins fell while profit rose

The headline is growth. The release also shows what that growth cost. Non-GAAP gross margin was 65.6%, against 68.1% a year ago, a drop of 2.5 points. Product gross margin fell from 67.2% to 63.7% on a non-GAAP basis. Cisco did not say in the release what drove it, and we are not going to guess; faster growth in networking gear that carries a different mix is one possibility the company has not confirmed.

Profit still grew far faster than sales because costs barely moved. Non-GAAP operating expenses were $5.1 billion, up only 2%, and fell to 27.8% of revenue. CFO Mark Patterson called it "significant operating leverage." The catch for the next few quarters: leverage from flat costs works once. If gross margin keeps sliding, earnings growth will have to come from sales alone.

What the guidance implies

• Second quarter: revenue of $18.0 billion to $18.2 billion, which is below the $18.5 billion just reported. CNBC cites an LSEG average estimate of $17.88 billion, so it is above the Street but lower sequentially. Non-GAAP EPS is guided to $1.34 to $1.36 and non-GAAP gross margin to 65% to 66%.
• Full year: revenue of $74.8 billion to $75.8 billion and non-GAAP EPS of $5.47 to $5.53. Subtracting Q1 leaves $56.3 billion to $57.3 billion for the last three quarters, an average of about $18.8 billion to $19.1 billion each. That implies sales stepping back up after Q2, which is an inference from the guidance, not a statement by Cisco.

At Thursday's $102.01 close, the top and bottom of the EPS range put the stock at roughly 18.5 to 18.7 times fiscal 2027 non-GAAP earnings (our arithmetic, not a Cisco or analyst figure). The $0.42 quarterly dividend, $1.68 a year, is about 1.6% of that price.

Why the stock sits where it does

CNBC says the shares were up about 35% this year at Thursday's close. Our chart shows them 21.5% below the June 4 peak. Both are true: the stock ran hard early and has given back part of it. Cisco also bought back about 18 million shares in the quarter at an average of $112.38, according to the release, which is above Thursday's close. The company has $6.1 billion left on its repurchase authorization.

Who it hits

For a business owner, the useful read is where the money is going. A 43% jump in networking and $9 billion of hyperscaler orders mean the largest buyers are driving the growth. The same release shows services growing 1%, and security and collaboration in single digits. Companies buying switches and firewalls for ordinary offices and branches are not what is driving this cycle's growth. Whether that affects their lead times or pricing is not in the release, so it is a fair question to put to a reseller before a refresh.

Sources: Cisco 8-K and Exhibit 99.1 (SEC EDGAR, Nov. 12, 2026); CNBC; Yahoo Finance price data. Price-to-earnings and dividend yield figures are Chronicle calculations. This is market information, not investment advice.