Cisco Systems shares soared Wednesday night after the company posted quarterly results and raised its outlook. Additionally, double-digit order growth in the quarter proves that Cisco is an underrated winner in building AI infrastructure. The company’s revenue for the first quarter of fiscal 2026, which ended Oct. 25, rose 8% year over year to $14.88 billion, beating the consensus estimate of $14.76 billion from analysts compiled by LSEG. Non-GAAP earnings rose 10% for the year to $1 per share, beating expectations of 98 cents, according to LSEG data. GAAP stands for Generally Accepted Accounting Principles. Let’s take a look at the stock price of CSCO YTD Mountain Cisco Systems YTD Cisco go. Shares soared more than 7% in after-hours trading to just about $80 a share. This is on top of a 3% rise during regular trading hours. If the stock reaches $80.06, it would be the highest price since March 2000. As of Wednesday’s close, the stock had risen about 25% since the beginning of the year. Conclusion This is a natural move after an excellent quarter, highlighted by accelerating growth in product orders, particularly from artificial intelligence customers. Cisco CEO Chuck Robbins said in a post-earnings conference that strong AI orders were due to “deepening” relationships with existing customers. The company also called a “multi-year, multi-billion dollar campus network renewal cycle” underway. However, not everything was perfect, with the security business underperforming expectations and revenue declining year-over-year. Management says some revenue recognition timing issues need to be resolved. Prior to this quarter, security vulnerabilities were our primary concern. The business also missed revenue expectations last quarter, and we didn’t think there would be a quick turnaround. Concern about this repeat was the main reason I took a profit on this position on Monday near $71. Although we were right to pay attention to security, the market turned a blind eye to this issue as networks grew rapidly. A return to security is not necessary for management to make an outlook, but the outlook was significantly higher than street forecasts on Wednesday evening. Another earnings concern for the bears was that Cisco has a large federal business and would be adversely affected by the government shutdown. Robbins noted that despite the government shutdown, the business was able to grow orders at a high-single-digit rate in the quarter. He expects orders to pick up once the government reopens. Why Own Cisco Systems? Cisco Systems is an enterprise networking equipment provider that has made great strides in appealing to cloud customers. The company also expanded its presence in the security market through its acquisition of Splunk. Additionally, Cisco is making a long-term transition to sticky, high-margin subscription software sales, which should help the company significantly improve its price-to-earnings ratio. Competitors: Arista Networks, Hewlett Packard Enterprise, Juniper Networks Recent Purchases: August 19, 2025 Started: July 17, 2025 The story remains that Cisco has turned into a sleeper AI business thanks to billions of dollars it has collected from hyperscaler customers. This surge in orders is turning into significant revenue. In fiscal year 2025, Cisco recognized approximately $1 billion in AI revenue from hyperscalers, some of the largest Big Tech companies, including major cloud companies. On the conference call, Robbins said the company expects to generate about $3 billion in revenue from hyperscalers in fiscal 2026. Despite this accelerated growth and subscription revenue accounting for more than half of total revenue, the price-to-earnings ratio remains reasonable at around 19.5x, based on the new midpoint of management’s full-year adjusted earnings per share (EPS) outlook. We’re reiterating our rating at 2 because we don’t want to follow the stock’s sudden rise, but we’re raising our price target from $78 to $85 per share. Commentary Total product orders increased 13% year over year, accelerating from 7% growth in the prior quarter, with growth in all regions and customer markets. When reviewing Cisco, we always focus on orders. Because it’s the best leading indicator of where your sales are headed. Product revenue rose 10% year over year to $7.77 billion, beating expectations of about $7.47 billion. Starting with the Networking subsegment, product orders grew at a rate in the low teens, marking the fifth consecutive quarter of double-digit growth. AI infrastructure orders from hyperscaler customers were a big driver of its growth. Cisco’s order book for the quarter was $1.3 billion, up from more than $800 million in the prior quarter. The company also saw strong orders for enterprise routing, campus switching, wireless, industrial IoT and servers. Cisco’s recent AI success can be attributed to its close ties to portfolio names Nvidia and Advanced Micro Devices. Last month, Cisco announced the N9100. This is what we call the first Nvidia partner-developed data center switch based on Nvidia Spectrum-X Ethernet switch silicon. “Available in the second half of fiscal 2026, the N9100 will provide sovereign and neo-cloud providers with the operational consistency and flexibility they need to build and manage AI at scale,” Robbins explained. Neoclouds is a next-generation cloud dedicated to high-speed computing. CoreWeave, which rents cloud-based Nvidia chips for AI tasks, is an example of neocloud. Cisco is also supporting G42, a leading AI company in the United Arab Emirates, to power, connect, and secure large-scale AI clusters using AMD graphics processing units (GPUs). The story of enterprise AI is also beginning to unfold. Cisco experienced strong demand for its switching, routing and wireless products, a sign that customers are “investing in the connectivity they need to deploy AI,” Robbins said. Robbins claimed that the company has a growing pipeline of high-performance networking products that exceeds $2 billion across sovereign, neocloud, and enterprise customers. This comes after Cisco booked $200 million in orders from these customers in its fiscal first quarter. Segmentally, Networking sales rose 15% to $7.77 billion, beating expectations. The biggest driver of this revenue increase is due to service provider routing, much of which is driven by AI infrastructure. Data center switching and enterprise routing also saw double-digit increases, and campus switching revenue grew at a high-single-digit rate. Security segment sales fell 2% year-on-year, again falling short of analysts’ expectations. It’s disappointing to see such significant declines in consecutive quarters, but management believes this decline is due to timing issues. Robbins explained that more customers are using Splunk’s services through cloud subscriptions rather than on-premises transactions, leading to changes in when revenue is recognized. As it turns out, this transition isn’t a bad thing. The company supports growing subscription-based revenue. Cisco completed its $28 billion acquisition of Splunk in March 2024. “We’re actually excited to have more cloud subscriptions for Splunk, which will allow us to deploy more and scale more, deliver innovation faster, and help our customers unlock value from AI Now,” Robbins explained on the conference call. More widely. Cisco said orders for some new and refreshed security products, which account for about a third of its portfolio, continue to increase, while orders for products are decreasing. Importantly, management doesn’t think the security stumbling block will last long. They expect revenue growth to accelerate and end the year at a higher rate. However, even if that does not happen and its operating results do not improve significantly going forward, Cisco said it remains confident in its ability to achieve its second quarter and full-year 2026 guidance. Collaboration and Observability segment revenues decreased 3% and increased 6%, respectively. Collaboration was below expectations and Observability was in line with expectations. Services revenue rose 2% year over year to $3.81 billion, slightly exceeding expectations. As always, we appreciate Cisco’s consistent approach to returning cash to shareholders. The company repurchased $2 billion worth of shares during the quarter at an average price of $68.28. This looks like a great trade as the stock is knocking on the $80 door in after-hours trading. There is $12.2 billion remaining under authorization. As of Wednesday’s close, Cisco stock has an annual dividend yield of 2.2%. Guidance Cisco expects revenue for the second quarter of 2026 to be between $15 billion and $15.2 billion, significantly higher than the consensus estimate of $14.62 billion. Additionally, non-GAAP EPS is expected to be between $1.01 and 1.03 cents, well above the consensus estimate of 98 cents. Cisco expects full-year 2026 revenue to be in the range of $60.2 billion to $61.0 billion. This is an increase of about $1 billion from the previous outlook of $59 billion to $60 billion. This revised outlook is higher than the consensus estimate of $59.64 billion. As a result, management has raised its EPS guidance to $4.08 to $4.14 from the previous estimate of $4.00 to $4.06. This new midpoint of $4.11 is 7 cents better than analysts’ consensus estimates. (The Jim Cramer Charitable Trust is a long-time CSCO, NVDA. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
