Cisco Lifts Hyperscaler AI Revenue Target to $9 Billion

Cisco raised its forecast for AI infrastructure revenue from hyperscalers to about $9 billion for fiscal 2027, after quarterly revenue rose 24% to a record $18.5 billion. The quarter, ended Oct. 24, delivered the company's fastest growth in more than 15 years. The new AI target is up from about $7.5 billion projected in August and more than double the roughly $4 billion booked in fiscal 2026.

"We are in the very early stages of a multi-year networking supercycle," chief executive Chuck Robbins said.

The company also lifted full-year guidance. Revenue is now expected at $74.8 billion to $75.8 billion, up from $72.2 billion to $73.4 billion. Adjusted EPS guidance rose to $5.47 to $5.53 from $5.05 to $5.11. Shares climbed in extended trading after the 4:05 p.m. ET release, CNBC reported.

How big was the beat?

Adjusted EPS of $1.40 topped the $1.33 LSEG consensus. Revenue of $18.5 billion beat the $18.1 billion estimate. Analysts polled by LSEG had expected $1.33 a share on revenue of $18.1 billion, CNBC reported.

GAAP net income rose 59% to $4.6 billion, or $1.14 a share. Adjusted net income reached $5.6 billion, or $1.40 a share, up 40% and above the $1.32 to $1.34 range Cisco gave in August. Operating expenses fell 3% on a GAAP basis. That lifted the adjusted operating margin to a record 37.8%.

What drove the quarter?

Networking carried the results. The segment, which includes switches, routers, Silicon One chips and optics sold to cloud companies, rose 43% to $11.1 billion. Security grew 7% to $2.1 billion. Collaboration advanced 8% and observability 2%.

Product revenue rose 32% to $14.7 billion. Services, about a fifth of sales, grew 1%.

By region, sales rose 28% in the Americas, 18% in Europe, the Middle East and Africa, and 21% in Asia-Pacific, Japan and China.

Where are margins and inventory heading?

Margins on the hardware are thinner. GAAP gross margin fell to 63.7% from 65.5% a year earlier. Adjusted product gross margin dropped to 63.7% from 67.2%.

Cisco is also stocking up. Inventory rose to $6.4 billion from $5.7 billion in July. Inventory purchase commitments reached $21.9 billion, up from $17.2 billion at the end of July and $8.3 billion a year earlier.

The company bought back $2.0 billion of stock — about 18 million shares at an average $112.38 — and paid $1.7 billion in dividends, for total returns of $3.7 billion. Some $6.1 billion remains under its repurchase authorization. The board declared a quarterly dividend of 42 cents a share, payable Jan. 20 to holders of record on Jan. 4.

What happened to AI order growth?

The $9 billion AI revenue figure covers only hyperscalers. It excludes sales to neoclouds, sovereign AI projects and enterprises.

Cisco gave no dollar figure for hyperscaler AI orders this quarter. It said only that they "grew meaningfully" across its top customers. The company took $4 billion of such orders in the fourth quarter and $9.3 billion over fiscal 2026.

It added three AI design wins: two for systems built on its P200 Silicon One chip for links between data centers, and one for optics. That makes 18 design wins over the last five quarters.

Total product orders rose 21%, or 14% excluding hyperscalers, slowing from 35% and 25% in the fourth quarter. Networking orders rose 28% after 40%. Orders from service providers and cloud companies jumped 47%. Orders in Asia-Pacific, Japan and China rose 57%. Enterprise orders rose 15% and public-sector orders 13%. Campus networking orders, the office switches and Wi-Fi gear Cisco says are early in a refresh cycle, rose 14%. Industrial IoT orders climbed about 50%.

Remaining performance obligations, contracted revenue not yet recognized, rose 8% to $46.2 billion.

What comes next?

For the fiscal second quarter, Cisco forecast revenue of $18.0 billion to $18.2 billion and adjusted EPS of $1.34 to $1.36. GAAP EPS guidance is $1.07 to $1.09. The company expects an adjusted operating margin of 36% to 37%. The revenue range sits above the average analyst estimate of $17.88 billion, according to LSEG data cited by CNBC. The new full-year GAAP EPS range is $4.38 to $4.44, up from $4.00 to $4.06.

Operating cash flow rose 36% to $4.4 billion in the quarter.

The report landed the day Nvidia said Jensen Huang resigned as chief executive, and less than a week after a Morgan Stanley downgrade knocked Cisco shares down 7%. With order growth decelerating from hyperscaler peaks but backlog and purchase commitments still climbing, Cisco is betting the networking supercycle outlasts the margin pressure its AI hardware brings.