Cisco Systems (CSCO) delivered the kind of quarter that officially welcomes the company into the center of the artificial intelligence trade. Long viewed as a mature networking company left behind by the hyperscaler and semiconductor boom, Cisco instead showed investors that it is increasingly becoming a critical infrastructure supplier powering the AI buildout. The company’s fiscal third-quarter results came in ahead of expectations across nearly every important metric, but the real story was the massive acceleration in AI infrastructure demand, hyperscaler orders, and networking growth. Shares initially exploded as high as $122.73 following the report — their best level since the internet bubble era — before pulling back modestly to around $117 in premarket trading Thursday morning. Even with that retracement, the market reaction remains overwhelmingly bullish as investors increasingly believe Cisco may be entering a multi-year AI-driven growth cycle.
The numbers themselves were exceptionally strong. Cisco reported fiscal third-quarter adjusted earnings of $1.06 per share, beating Wall Street expectations of $1.04. Revenue rose 12% year-over-year to a record $15.8 billion, ahead of consensus estimates near $15.56 billion. Non-GAAP operating margin came in at 34.2%, slightly above expectations, while product orders surged 35% year-over-year and accelerated 19% even excluding hyperscaler AI orders. That kind of broad-based demand acceleration is not what investors typically associate with Cisco, which helps explain why the stock is seeing such an aggressive rerating higher.
The company also delivered a major guidance raise that reinforced confidence this was not simply a one-quarter spike in AI demand. Cisco guided fiscal fourth-quarter revenue to a range of $16.7 billion to $16.9 billion, well above consensus expectations of approximately $15.8 billion. Non-GAAP earnings guidance of $1.16 to $1.18 per share also crushed expectations near $1.07. For fiscal 2026, Cisco raised revenue guidance to $62.8 billion to $63 billion from its prior outlook of $61.2 billion to $61.7 billion, while increasing EPS guidance to $4.27 to $4.29 from $4.13 to $4.17 previously.
But the biggest driver behind the market’s excitement was clearly AI.
Cisco revealed that AI infrastructure orders from hyperscalers have now reached $5.3 billion year-to-date and raised its full-year expectation for AI hyperscaler orders to approximately $9 billion from the prior $5 billion forecast. Management also said it now expects to recognize roughly $4 billion in AI infrastructure revenue during fiscal 2026, up from the prior $3 billion expectation. Chairman and CEO Chuck Robbins called the company’s technology “more relevant than ever in the AI era” while highlighting record demand across networking, optics, silicon, and security infrastructure.
The market is reacting so favorably because Cisco is no longer being viewed as merely a legacy enterprise networking vendor. Investors are increasingly seeing the company as one of the key beneficiaries of the AI infrastructure arms race taking place across hyperscalers such as Meta Platforms (META), Microsoft (MSFT), Amazon.com (AMZN), and Alphabet (GOOGL). Those companies are spending hundreds of billions of dollars building AI clusters, networking fabrics, and data center infrastructure. Cisco is now directly participating in that spending cycle.
Networking was the clear standout segment in the report. Networking revenue surged 25% year-over-year to $8.82 billion, easily topping analyst expectations near $8.44 billion. Data center switching orders climbed more than 40%, while networking product orders accelerated more than 50% year-over-year. Campus networking orders also increased more than 25% as enterprises continue refreshing infrastructure to support AI workloads and higher data throughput. Management described the current environment as a “major multi-year, multi-billion-dollar campus networking refresh cycle.”
The optics business also drew heavy investor attention. Cisco said Acacia — its optical networking subsidiary — generated more than $1 billion in orders during the quarter, up triple digits year-over-year. That is particularly important because optics is becoming one of the most critical bottlenecks in AI data centers as hyperscalers race to move ever-larger amounts of data between GPUs and compute clusters. Investors increasingly believe Cisco’s internally developed Silicon One architecture and optics platform provide a major competitive advantage in the AI networking ecosystem.
One of the biggest concerns heading into the quarter was whether rising memory costs and component inflation would pressure gross margins. While margins did decline modestly, management largely reassured investors that the situation remains manageable. Non-GAAP gross margins came in at 66.0%, slightly below consensus expectations of 66.2% and down from 68.6% a year ago. Product gross margins declined to 64.3% from 67.6% last year, primarily due to product mix and higher memory costs.
However, Cisco’s commentary on margins was notably constructive. CFO Mark Patterson repeatedly emphasized during the earnings call that gross margins “have stabilized” and highlighted that Cisco has implemented more than 20 separate programs designed to reduce memory utilization and offset inflationary pressures. The company also acknowledged implementing mid-single-digit price increases across portions of its product portfolio, with management noting that roughly four to five percentage points of order acceleration came directly from pricing actions.
Another key positive was Cisco’s commentary around supply chains. While many AI infrastructure companies continue discussing constraints around GPUs, memory, optics, and advanced packaging, Cisco said it has effectively secured supply through calendar year 2026 and has not seen any order decommitments from customers. Management specifically highlighted the advantage of having Silicon One developed internally, helping reduce exposure to some third-party supply bottlenecks.
Security and software trends were more mixed. Security revenue was essentially flat year-over-year while services revenue declined 1%. Cisco acknowledged that Splunk’s transition toward cloud subscriptions continues creating near-term revenue pressure, though management suggested those dynamics should improve over time. Collaboration revenue also slipped 1%. Still, investors largely ignored those slower-growth businesses because AI and networking momentum completely dominated the narrative.
The company also announced a restructuring plan that will eliminate fewer than 4,000 jobs, representing less than 5% of the workforce. Management framed the move as a resource reallocation effort designed to support investment into key growth areas including silicon, optics, security, and AI. Importantly, Cisco emphasized the restructuring was not primarily about cost-cutting but rather repositioning the business toward higher-growth opportunities.
Analyst reaction following the report was overwhelmingly bullish. Evercore ISI raised its price target to $150 from $110 while maintaining an Outperform rating, calling the quarter a “breakout print.” KeyBanc raised its target to $125 from $87 and said Cisco appears to be “firing on all cylinders.” Analysts repeatedly pointed to the durability of AI networking demand, accelerating hyperscaler orders, and Cisco’s improving strategic positioning across optics and silicon infrastructure.
Ultimately, the reason investors are rewarding Cisco so aggressively is that the company appears to be undergoing a major narrative transformation. For years, Cisco traded like a slow-growth networking incumbent with limited upside. Now, investors increasingly view it as one of the core infrastructure providers enabling the AI buildout. The combination of accelerating order growth, hyperscaler demand, stabilizing margins, strong guidance, and improving optics exposure is creating a powerful rerating story.
After surging to levels not seen since the dot-com bubble, some near-term profit taking is understandable. But with AI infrastructure demand still accelerating and hyperscalers continuing to spend aggressively, investors will likely view pullbacks in Cisco shares as buying opportunities rather than signs the rally is over.