Quick Read CSCO tumbled 7% on gross margin compression to 66.3%, overshadowing a strong Q4 EPS beat and 18% revenue growth. Rosenblatt raised its target to $165 and Wells Fargo to $150, while ANET slipped just 0.7%, flagging a Cisco-specific margin repricing. Cisco’s $9.3 billion in FY2026 AI infrastructure orders and $7.5 billion projected for…
CSCO tumbled 7% on gross margin compression to 66.3%, overshadowing a strong Q4 EPS beat and 18% revenue growth.
Rosenblatt raised its target to $165 and Wells Fargo to $150, while ANET slipped just 0.7%, flagging a Cisco-specific margin repricing.
Cisco’s $9.3 billion in FY2026 AI infrastructure orders and $7.5 billion projected for FY2027 anchor the bull case despite near-term margin compression.
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Shares of Cisco Systems (NASDAQ:CSCO) are down 7% to $115 Thursday morning after the company’s fiscal Q4 2026 results delivered a beat and raise. The reaction has flipped almost entirely to gross margin compression tied to AI hardware mix, and the move partly unwinds a 63% year to date (YTD) run heading into the print.
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Cisco stock closed at $123.88 Wednesday. Non-GAAP EPS came in at $1.22 against $1.17 consensus, while revenue reached $17.3 billion (up 18% year over year).
Meanwhile, Cisco’s AI infrastructure orders totaled $4 billion in the quarter and $9.3 billion for fiscal 2026.
Margin Compression Steals the Show
Cisco’s non-GAAP total gross margin fell to 66.3% from 68.4% a year earlier, and product non-GAAP gross margin dropped to 64.8% from 67.5%. Management guided Q1 FY2027 gross margin to 65% to 66%, signaling continued compression as lower-margin AI hardware scales into the mix.
Inventories climbed to $5.69 billion from $3.16 billion, while full year operating cash flow was flat at $14.2 billion. Services revenue was the softer line, flat YoY at $3.79 billion versus $3.81 billion consensus.
Guidance still came in above the Street’s consensus call. Cisco projected Q1 FY2027 revenue of $18 billion to $18.2 billion versus $16.83 billion consensus, and adjusted EPS of $1.32 to $1.34.
Full-year FY2027 guidance calls for $72.2 billion to $73.4 billion in revenue and $5.05 to $5.11 in adjusted EPS, including $7.5 billion of AI infrastructure revenue.
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Cisco Systems CFO Mark Patterson stated, “In (the fourth quarter), we delivered record revenue, non-GAAP operating income and EPS, all exceeding the high end of our guidance ranges and demonstrating strong financial discipline and operating leverage.” He also noted that Cisco delivered its “highest productivity metrics in 30 years” in fiscal 2026.
Five Firms Raise Cisco Targets Anyway
Barclays’ Tim Long lifted his CSCO stock price target to $123 from $121 (Equal Weight), citing security upside and enterprise spending strength while flagging AI dilution risk in FY2027 product gross margin. KeyBanc moved to $135 from $130 (Overweight) on higher estimates, but still warned about a Q2 revenue deceleration and a step down in gross margins that could leave Cisco stock range-bound near term.
Furthermore, Morgan Stanley matched at $135 from $130 (Overweight), pointing to broad-based enterprise strength, hyperscaler AI momentum and improving share dynamics even as hardware mix pressures margins into FY2027. Rosenblatt jumped to $165 from $150 (Buy), calling guidance “robust” and describing the underlying growth trajectory as “stronger than ever.”
Also, Wells Fargo’s Aaron Rakers went to $150 from $130 (Overweight), citing a networking super-cycle, Silicon One plus Acacia momentum and continued top- and bottom-line upside through FY2027. The wide spread between the Barclays and Rosenblatt targets captures the sell-side’s genuine disagreement about how to weigh AI-driven volume against product margin dilution.
Peers Suggest a Cisco-Specific Repricing
Arista Networks (NYSE:ANET) stock is down 0.7% to $209.03 and remains up 61% YTD. Arista’s stronger-than-expected Q2 last week, with a strong Q3 outlook, raised the bar Cisco had to clear at today’s read.
Ciena (NYSE:CIEN) shares are up 3% to $443.38, and are up 85% YTD, as optical and AI interconnect demand holds firm. F5 (NASDAQ:FFIV) stock trades at $422.95, up 66% YTD, positioned in enterprise application delivery and security rather than the AI hardware super-cycle.
Technology Select Sector SPDR Fund (NYSEARCA:XLK) shares are at $191.24, with the ETF up 1.26% today and up 33% YTD. The ETF holds both Cisco and Arista, so a single-name 7% drop gets diluted across the fund’s basket of stocks. Investors should consider that a tech-only fund still carries concentrated sector risk despite that diversification.
What to Watch
The core debate is whether Cisco’s Q1 FY2027 gross margin guide of 65% to 66% marks the trough or the start of a longer AI dilution trend. Investors can watch for whether KeyBanc’s range-bound thesis holds into the fall, and whether the spread between the Barclays $123 and Rosenblatt $165 targets narrows as more sell-side notes drop.
The tension for Cisco is straightforward: volume versus margin in the AI networking super-cycle. The bulls argue that near-term margin compression is an acceptable trade for capturing share in a durable, multi-year infrastructure buildout, while the bears worry that product mix dilution could persist longer than management is signaling.
For now, the sell-side is broadly siding with the volume story, even as today’s tape sides with the margin worry. How that tension resolves through the fall reporting cycle will likely determine whether Cisco stock reclaims its pre-print highs or settles into KeyBanc’s range-bound scenario.
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