Cisco did everything the textbook asks for last quarter and the stock still fell out of bed.
The networking giant reported fiscal fourth-quarter results after the close on Wednesday. It beat on profit, beat on revenue, and handed investors guidance that topped what Wall Street wanted. On Thursday the shares dropped about 8% to close near $113. Welcome to a market where meeting high expectations is treated as bad news.
Beat, beat, beat, sell
Adjusted earnings came in at $1.22 per share against the $1.17 analysts expected. Revenue hit $17.25 billion, ahead of the $16.82 billion estimate and up 18% from $14.7 billion a year earlier. GAAP net income jumped 51% to $3.9 billion, or $0.97 per share. For the current quarter, Cisco guided revenue to $18 billion to $18.2 billion, well past the roughly $16.8 billion the street had modelled.
On paper, that is a clean sweep. So why the sell-off?
The margin wrinkle
The trouble sat in one line. Non-GAAP gross margin slipped to 66.3% from 68.4% a year earlier. The culprit is the rising cost of components going into AI hardware, memory chief among them. Memory prices have been climbing all year, and Cisco is paying up like everyone else building kit for data centres. When your margin dips two points in the same quarter that rivals are boasting about AI tailwinds, investors notice, and they sell first and ask later.
The AI demand is real
Here is the part that should not get lost. Cisco’s hyperscaler customers, the enormous cloud and internet platforms bankrolling the infrastructure boom, placed $4 billion of orders in the fourth quarter alone. That pushed their full-year fiscal 2026 total to $9.3 billion. This is a company with a genuine seat at the AI networking table, not a bystander watching Nvidia hoover up the profits.
The switches, routers and optics that shuttle data between thousands of chips have to come from somewhere, and Cisco sells a lot of them. Record revenue and 18% growth from a business this size is not the profile of a firm being left behind.
What it means
The lesson here is about expectations, not fundamentals. Cisco stock had run up on AI optimism, and a two-point margin squeeze was enough to spook a crowd that had priced in a spotless quarter. If memory and component costs ease, the margin line recovers and the AI orders keep flowing. If they do not, Cisco keeps trading volume for profitability, which is a fine trade only up to a point.
One quarter rarely settles the argument. The order book says demand is strong, the margin says the cost of chasing it is real, and the share price says the market wanted both at once. (Not investment advice.)
Did you know: at the peak of the dot-com bubble in March 2000, Cisco was briefly the most valuable company on the planet, worth more than $500 billion, before the crash wiped out most of it.
Sources
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