Cisco Systems deserves more respect in AI, and its quarterly results prove it

Cisco Systems surpassed fiscal Q4 revenue and EPS estimates, reporting $14.67 billion and $0.99 respectively, and issued stronger-than-expected guidance for FY26. This strong performance was primarily driven by robust networking product growth, notably from over $2 billion in AI infrastructure orders for FY25 from webscale customers and strategic partnerships with Nvidia. While the security segment saw a revenue miss, the overall strength in AI-related orders and enterprise networking refresh positions Cisco as a potentially undervalued AI play with significant future growth opportunities.

Analysis

Cisco Systems reported a solid fiscal fourth quarter, beating consensus estimates with revenue of $14.67 billion (an 8% year-over-year increase) and non-GAAP EPS of $0.99. The company also issued fiscal 2026 guidance that slightly exceeded expectations. The primary growth engine was the Networking division, where revenue grew 12% to $7.63 billion, propelled by a powerful combination of an enterprise refresh cycle and surging demand for AI infrastructure. Total product orders, a critical leading indicator, increased 7% year-over-year. The AI narrative is particularly compelling, with Cisco securing over $2 billion in AI-related orders in fiscal 2025, double its initial target. This was driven by triple-digit order growth from four of the top six webscale customers and strategic partnerships with Nvidia and AMD. However, the results were not uniformly positive. The Security division posted a significant revenue miss despite a 9% YoY increase, attributed to U.S. federal budget cuts, although order growth for new security products exceeded 20%. Furthermore, the Observability, Collaboration, and Services segments also missed estimates. Despite these soft spots, the company's valuation remains at a high-teens price-to-earnings multiple, which appears modest for a company demonstrating significant exposure to the AI buildout, while also consistently returning capital to shareholders through actions like its recent $1.3 billion stock buyback.

Key Decisions for Investors

• Given the $2 billion in AI-related orders and pivotal partnerships with Nvidia and AMD, investors should evaluate Cisco as a potential value play on AI infrastructure, as its current valuation may not fully reflect this high-growth catalyst.
• Investors must closely monitor the Security division's ability to convert its strong new product order growth (over 20%) into recognized revenue to offset weakness in other areas, such as the U.S. federal business.
• Pay close attention to management's future commentary on the conversion timeline of its substantial AI order backlog into revenue, as increased clarity could serve as a significant catalyst for a stock re-rating.
• The consistent capital return program, including a $1.3 billion buyback in the quarter and $14.2 billion remaining in its authorization, provides a supportive capital allocation framework that may limit downside risk.