Cisco Systems, Inc. (CSCO) | The Buildout — AI Infrastructure

——Mkt cap — · 52-wk —–— · YTD — · delayed
Updated Aug 13, 2026Q3 FY2026 reviewed
Cisco designs networking and security technologies, including Silicon One systems and Acacia coherent optics, for AI infrastructure.
AI orders $9.3B
FY26 hyperscaler AI infrastructure orders totaled $9.3B, 4.5x FY25.
Revenue +18% y/y
Q4 FY26 revenue reached $17.3B, above the high end of guidance.
Networking orders +40%
Eighth consecutive quarter of double-digit networking order growth.
GM -260 bps y/y
Q3 non-GAAP gross margin fell to 66.0% on hardware-heavy mix.
The Buildout Takeaway
The order book is running well ahead of recognized revenue, making conversion the central test. Hardware-led demand is strong, but the mix is pressuring gross margin even as operating margin benefits from cost discipline.
Analyst coverage
73 analysts·38 Buy34 Hold1 Sell
Median target$130  Range $110–$137 · 10 estimates
Management guidance
Q1 FY27 revenue guidance $18.0B–$18.2B · FY27 hyperscaler AI infrastructure revenue expected at $7.5B
Important: The Buildout is a data analytics platform. Content is generated by algorithms and AI agents using public filings, earnings transcripts, and market data. This is not personalized investment advice.
Our View

The Verdict

Cisco designs and sells networking, security, collaboration, observability, and services technologies, and is incorporating AI across those portfolios. In the AI buildout, its clearest role is hyperscaler AI networking: Silicon One-based systems for scale-out and scale-across, plus Acacia coherent pluggable optics.

Market Cap—
Revenue (TTM)$60.7B
Revenue Growth+9.2%
EBITDA Margin (TTM)27.5%
Net Debt$14.7B
Earnings Beats7 of 7
P/E (TTM)—
EV/EBITDA (TTM)—

What We Like

  • FY26 hyperscaler AI infrastructure orders reached $9.3B, 4.5x the FY25 total, and FY27 hyperscaler AI revenue is expected at $7.5B.
  • Q4 FY26 revenue grew 18% y/y to $17.3B, above the high end of guidance, lifting FY26 revenue to $63.3B, up 12%.
  • Total product orders grew 35% y/y in Q4 FY26, while ex-hyperscaler orders accelerated to 25% y/y.
  • Three Silicon One P200 scale-across design wins were secured as of early Q4 FY26—the first in Cisco's history—plus one G200 scale-out win.
  • Q4 FY26 non-GAAP operating margin reached 35.9%, above the 34%–35% guide.

What We’re Watching

  • FY27 AI revenue depends on converting $9.3B of FY26 orders without cancellations or decommits.
  • Software revenue grew only 1% y/y in Q3 FY26 while hardware grew about 30%, and total ARR rose only 2%.
  • The 10-Q says memory cost constraints have been adverse and are expected to continue; Q3 product gross margin fell 330 bps y/y.
  • Q1 FY27 results should provide the full FY27 guide and P200 conversion evidence.
Bottom Line

The thesis has strengthened in direction but remains split. AI and networking demand is clearly accelerating, yet the quality of growth is weaker: hardware is leading while software and ARR lag. The open question is whether order momentum converts into durable FY27 revenue while gross margin holds near 66%.

Next upThe next catalyst is the Q1 FY27 earnings release and call. That is where management promised the full FY27 guide and where P200 conversion, FY27 AI order guidance, security exit-rate confirmation, and Splunk migration visibility will be tested.
Last Quarter — Q3 FY2026

Earnings Beat

Cisco's Q4 FY26 revenue was $17.3B, up 18% y/y, above the high end of guidance. Non-GAAP EPS was $1.22, up 23% y/y, and non-GAAP operating margin was 35.9%, above the 34%–35% guide. Total product orders rose 35% y/y.

MetricQ3 FY2026Q2 FY2026Q3 FY2025YoY
Revenue$15.8B$15.3B$14.1B+12.0%
Gross margin63.6%65.0%65.6%-200bps
EBITDA$4.6B$4.4B$3.8B+19.9%
EPS$0.85$0.80$0.62+36.0%
Hyperscaler AI infrastructure orders$4B$1.9Bn/a—
Given the strong demand, we now expect to take AI infrastructure orders of approximately $9 billion from hyperscalers in FY '26. 4.5x our FY '25 total.— Cisco management, 2026-05-13

Management tone: Management described the quarter as a record, raised AI order guidance, and answered margin and pull-forward questions with specific pricing and pipeline data. The CFO quantified price contribution and quote-window changes, and the CEO said the newest scale-across wins had no scale-across in the numbers yet.

Management Guidance

For Q1 FY27, management guided revenue of $18.0B–$18.2B and set fiscal 2027 hyperscaler AI infrastructure revenue expectation at $7.5B, up from the preliminary 'at least $6B' stated on the May call. The Q4 and FY26 guides assumed current tariffs and exemptions remain in place through the end of fiscal 2026. Full FY27 non-GAAP EPS guidance was not captured in the source, and Q1 GAAP EPS guidance was truncated at $1.08 to $1.

Business Trajectory

Trajectory

Revenue is accelerating: Q3 FY26 was $15.8B, up 12% y/y, and Q4 FY26 reached $17.3B, up 18% y/y, lifting FY26 revenue to $63.3B, up 12%. The acceleration is product- and networking-led; total product orders grew 35% y/y in both Q3 and Q4. Margin signals are mixed—gross margin is broadly stable while operating and EBITDA margins expand—but the growth mix is hardware-heavy, with software revenue up 1% and ARR up 2%.

Revenue & Margin Trajectory
RevenueGross margin$0$10.0B$12.6B$12.4B$11.6B$11.9B$12.1B$12.1B$11.9B$12.5B$12.8B$13.1B$12.4B$13.0B$13.4B$13.2B$12.0B$12.0B$12.2B$11.9B$12.0B$12.8B$13.1B$12.9B$12.7B$12.8B$13.1B$13.6B$13.6B$14.6B$15.2B$14.7B$12.8B$12.7B$13.6B$13.8B$14.0B$14.1B$14.7B$14.9B$15.3B$15.8B63%64%Q4'16Q1'17Q2Q3Q4Q1'18Q2Q3Q4Q1'19Q2Q3Q4Q1'20Q2Q3Q4Q1'21Q2Q3Q4Q1'22Q2Q3Q4Q1'23Q2Q3Q4Q1'24Q2Q3Q4Q1'25Q2Q3Q4Q1'26Q2Q3
RevenueGross margin$0$10.0B$12.6B$12.4B$11.6B$11.9B$12.1B$12.1B$11.9B$12.5B$12.8B$13.1B$12.4B$13.0B$13.4B$13.2B$12.0B$12.0B$12.2B$11.9B$12.0B$12.8B$13.1B$12.9B$12.7B$12.8B$13.1B$13.6B$13.6B$14.6B$15.2B$14.7B$12.8B$12.7B$13.6B$13.8B$14.0B$14.1B$14.7B$14.9B$15.3B$15.8B63%64%Q4'16Q1'17Q2Q3Q4Q1'18Q2Q3Q4Q1'19Q2Q3Q4Q1'20Q2Q3Q4Q1'21Q2Q3Q4Q1'22Q2Q3Q4Q1'23Q2Q3Q4Q1'24Q2Q3Q4Q1'25Q2Q3Q4Q1'26Q2Q3
Gross margin as reported.
Share Price — 12 Months
$50$100$052-wk high $123Aug '25NovFeb '26MayAug '26
52-week range $67–$123.
Share Price — 12 Months
$50$100$052-wk high $123Aug '25NovFeb '26MayAug '26
52-week range $67–$123.
The Numbers

The Model

The model projects FY+1 revenue of $71,000M and EBITDA of $21,442M, a 30.2% margin. FY+2 revenue is $77,300M and EBITDA is $23,963M, a 31.0% margin. The FY+1 projection follows the Q1 FY27 revenue guide of $18.0B–$18.2B and management's FY27 hyperscaler AI revenue expectation of $7.5B; the FY+2 step-up would require continued conversion of the AI order book and networking demand.

Revenue & EBITDA Projections
REVENUE$56.7B$75.0B$85.0BFY25FY+1 (E)FY+2 (E)EBITDA & MARGIN$14.6B$22.9B$26.4B31.0%FY25FY+1 (E)FY+2 (E)
REVENUE$56.7B$75.0B$85.0BFY25FY+1 (E)FY+2 (E)EBITDA & MARGIN$14.6B$22.9B$26.4B31.0%FY25FY+1 (E)FY+2 (E)
Solid bars are reported actuals; outlined bars are model projections — not company guidance.
MetricFY2025Next FY (E)Following FY (E)
Revenue$56.7B$75.0B$85.0B
YoY Growth—+32.4%+13.3%
EBITDA$14.6B$22.9B$26.4B
EBITDA Margin25.7%30.5%31.0%

Projections are the median of 5 independent model runs. The model’s revenue sits 15.7% above analyst consensus.

For Q1 FY27, management guided revenue of $18.0B–$18.2B and set fiscal 2027 hyperscaler AI infrastructure revenue expectation at $7.5B, up from the preliminary 'at least $6B' stated on the May call. The Q4 and FY26 guides assumed current tariffs and exemptions remain in place through the end of fiscal 2026. Full FY27 non-GAAP EPS guidance was not captured in the source, and Q1 GAAP EPS guidance was truncated at $1.08 to $1.

What Could Go Right — and Wrong

What good looks like
  • P200 scale-across design wins convert to meaningful orders and volume in FY27, expanding Cisco beyond scale-out.
  • Security revenue inflects to high single-digit or double-digit growth, improving the software/ARR mix.
  • The non-hyperscaler AI pipeline of about $3B converts broadly, proving AI demand beyond a few hyperscalers.
  • FY27 hyperscaler AI infrastructure revenue is delivered or raised again.
  • Acacia growth of over 200% for FY26 is confirmed, establishing optics as a durable franchise.
What could go wrong
  • A decommit or order cancellation appears, calling the $9.3B FY26 order book into question.
  • Ex-hyperscaler order growth weakens as price increases are lapped.
  • Gross margin breaks below the stabilized 66% level on memory costs or AI hardware mix.
  • Security remains flat or declines, and Splunk cloud transition drags beyond FY26.
  • CY27 silicon supply negotiations fail to secure needed wafers and substrates.
What’s Next

Looking Ahead

Over the next 12 months, Cisco's story depends on conversion: FY27 hyperscaler AI infrastructure revenue is expected at $7.5B versus roughly $4B in FY26, with P200 scale-across volume slated for FY27. The full FY27 guide on the next call, CY27 silicon supply negotiations, restructuring charges of $450M in Q4 FY26 and the remainder in FY27, and Galileo and Astrix integration will also shape the period.

Catalysts
  • Q1 FY27Quarterly results and guidance — Full FY27 guide, P200 conversion, AI order guidance, security exit rate, Splunk visibility.
  • FY27Hyperscaler AI revenue — Expected to rise from roughly $4B in FY26.
  • FY27P200 scale-across volume — First P200 design wins need order and revenue conversion.
  • CY27Silicon supply negotiations — CY27 wafers and substrates need securing without major cost increases.
Numbers

Financials

Annual Summary

MetricFY2024FY2025TTMYoY
Revenue$53.8B$56.7B$60.7B+5.3%
Gross Margin64.7%65.0%64.3%+23bps
EBITDA$14.7B$14.6B$153.9B-0.8%
EBITDA Margin27.3%25.7%27.5%158bps
Net Income$10.3B$10.2B$12.0B-1.4%
Free Cash Flow$10.2B$13.3B$137.5B—
Net Cash————

Key Ratios (Trailing)

Valuation
  • P/E TTM—
  • EV/EBITDA TTM—
  • EV/Revenue TTM—
  • Price/FCF TTM—
Profitability
  • Gross Margin (TTM)64.3%
  • EBITDA Margin (TTM)27.5%
  • Net Margin (TTM)19.7%
  • ROIC17.6%
  • FCF Conversion75.5%
  • SBC / Revenue6.6%
Reference

The Company

Cisco designs and sells networking, security, collaboration, observability, and services technologies, and is incorporating AI across those portfolios. In the AI buildout, its clearest role is hyperscaler AI networking: Silicon One-based systems for scale-out and scale-across, plus Acacia coherent pluggable optics.

Cisco operates through Americas, EMEA, and APJC segments and does not own or operate the bulk of its manufacturing facilities. It owns headquarters in San Jose, California, plus U.S. sites around San Jose, Research Triangle Park, North Carolina, and Richardson, Texas, and regional headquarters in Amsterdam and Singapore. It directly manages wafers, substrates, assembly, and test for its own silicon.

Business Segments

Networking
$8,815M Q3 FY26 revenue, +25% y/y
Switching, routing, wireless, servers, and software; includes Silicon One AI systems.
Growth driver: Hyperscaler AI networking orders and campus refresh.
Security
$2,008M Q3 FY26 revenue, flat y/y
Network security, SASE, threat detection, AI Defense, Hypershield.
Growth driver: New firewall wins; Splunk cloud mix drag remains.
Services
$3,724M Q3 FY26 revenue, -1% y/y
Technical support and professional services; includes AI-enabled services.
Growth driver: Cisco IQ adoption with more than 250 customers.

Competitive Landscape

Cisco's own 10-K lists a broad competitive set spanning AWS, Arista, Broadcom, Ciena, CrowdStrike, Datadog, Dell, Dynatrace, Fortinet, HPE, Huawei, Microsoft, New Relic, Nokia, Nvidia, Palo Alto Networks, RingCentral, Zoom, and Zscaler. Neighbor read-throughs show Arista, HPE, and Ciena reporting strong networking demand, confirming contested AI networking and optics opportunities.

  • Arista
    Raised FY26 guidance to about $12.6B, 40% growth; said the industry supply problem may last until 2028.
  • Ciena
    Record backlog of $7.7B; direct optical competitor to Cisco/Acacia; cited a first multi-rail hyperscaler order.
  • HPE
    Record networking backlog.
  • Fortinet
    Named as a competitor in Cisco's FY2025 10-K.
  • Nvidia
    Cisco's 10-K names Nvidia as a competitor; also partner via Secure AI Factory expansion announced March 2026.
Competitor names and views are drawn from Cisco's FY2025 10-K competitor list and the intel file's supply-chain neighbor read-throughs.

Supply Chain

Cisco is asset-light in manufacturing and reliant on its extended supply chain. It directly manages wafers, substrates, assembly, and test for its own silicon, while certain components are available only from single or limited sources.

Supplier
Fabrinet
Optical contract manufacturing
Supplier
Viavi
Test equipment (also customer)
→
Silicon One and Acacia optics
CSCO
Directly manages wafers, substrates, assembly, and test for its own silicon; does not own most manufacturing.
→
Hyperscalers
5 of top hyperscalers grew triple digits in Q3 FY26
Drive Silicon One and Acacia AI infrastructure orders
Enterprise
Product orders +18% y/y in Q3 FY26
Campus, wireless, data center switching, industrial IoT
Service provider and cloud
Product orders +105% y/y in Q3 FY26
AI preparation, routing, and compute

Analysis updated Aug 13, 2026, reviewing Q3 FY2026. Prices delayed. Built with The Buildout’s published methodology. Not investment advice. No positions held. © The Buildout 2026.