Cisco Beat Expectations, Why Did CSCO Stock Drop?

Cisco Stock (CSCO) experienced pressure after the company reported better-than-market-expected fourth-quarter performance in fiscal 2026.

Revenue and profits beat consensus, networking business grew strongly, and demand for AI infrastructure continued to rise.

However, the market does not only pay attention to how bigCisco earnings beat. 

Declining gross margins, high hardware contributions, and aggressive investor expectations meant that a seemingly positive report still received a negative response.

Cisco posted Q4 FY2026 revenue ofUS$17.25 billion dan adjusted EPS US$1,22. 

This figure is above market estimates of around US$16.82 billion for revenue andUS$1.17 for EPS.

Key Takeaways

• Cisco Q4 2026 earnings beat expectations with revenue of US$17.25 billion and adjusted EPS US$1,22.

• Non-GAAP gross margin fell from 68.4% to 66.3%, making the quality of growth a concern for investors.

• AI demand remains strong, but hardware-based business expansion has the potential to maintain pressure on margins.

Cisco Earnings Q4 2026: Revenue and Profit Growth Strong

Operaticallysional, Cisco earnings 2026actually recorded a solid performance.Fourth-quarter revenue reached US$17.25 billion, up about 18% compared to US$14.67 billion in the same period the previous year.

GAAP net income reached US$3.9 billion, or US$0.97 per share. Compared to Q4 FY2025, net income increased 51%, while diluted EPS increased approximately 52%.

On a non-GAAP basis, Cisco Lab reached US$4.9 billion with EPS of US$1.22. The EPS figure grew 23% year-on-year and higher than market estimates of around US$1.17.

These results indicate that the decline in CSCO stock was not because Cisco failed to meet the headline target. 

Investors instead found pressure in other parts of the financial report.

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Why is CSCO Stock Down Despite an Earnings Beat?

Source: Google Finance

The main cause is margin. Cisco's non-GAAP gross margin fell to 66.3% of 68.4% in the same period the previous year.

A decline of around 210 basis points is quite large for a mature technology company like Cisco.

XTB believes that the growing reliance on hardware, including network infrastructure for AI needs, is putting greater pressure on profitability than higher-margin businesses.

As a result, investors are starting to question not whether revenue can grow, but how much it will cost Cisco to generate that growth.

Cisco revenue beat looks positive, but margin quality is a weak point.

The market response was negative.

Shares fell in after-hours trading and XTB posted a decline of about 7% when Wall Street opened after the report.

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Cisco's Networking Business is Powered by the AI ​​Boom

Ironically, the factors that are squeezing margins are also Cisco's biggest growth catalysts.Networking segment revenue reached aroundUS$9.79 billion, up 28% year-on-year.

Cisco also noted networking product orders grew 40% in Q4.

The company secured approximately US$4 billion in AI infrastructure orders from hyperscalers in the quarter alone, bringing its total AI-related orders for FY2026 to approximately US$9.3 billion.

Cisco said AI infrastructure revenue from hyperscalers is expected to reach approximately US$4 billion during FY2026.

For FY2027, the company estimates that figure could increase to aroundUS$7.5 billion.

This provides an important catalyst forCisco stock 2026and the following fiscal year.

However,The market wants to see AI growth result in profit expansion, not just greater hardware sales volume.

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The Security Segment Also Grows

Networking wasn't the only business growing. Cisco's security revenue increased approximately 14% to US$2.23 billion in Q4 FY2026.

Collaboration rose 12% to approximately US$1.17 billion, while Observability grew 6% to US$275 million.

In contrast, Services revenue was relatively flat at around US$3.79 billion.

This composition helps explain Cisco's changing profile.

Product growth was much faster than services, with product revenue jumping 24%, while service revenue did not grow significantly.

ForCisco stock, this shift is a double-edged sword.

Product support revenue acceleration, but a larger hardware mix may make it more difficult to improve margins.

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Cisco's Guidance Remains Strong, But Margins Remain Under Pressure

Cisco provided fairly optimistic Q1 FY2027 guidance.

Revenue is estimated to be between US$18.0 billion to US$18.2 billion, while adjusted EPSprojected at US$1.32–US$1.34.

For the entire FY2027, the company estimates revenue of US$72.2–US$73.4 billion with non-GAAP EPS of approximately US$5.05–US$5.11.

These figures indicate that management still sees continued growth after FY2026 recorded revenue of US$63.3 billion.

However, Q1 non-GAAP gross margin guidance is only is in the range 65%–66%. 

The upper limit is still below the 66.3 per cent gross margin recorded in Q4.

This is one reason investors aren't entirely impressed with the strong guidance. The market sees the risk that sales will continue to rise while gross profitability will come under pressure.

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Cisco Closes FY2026 with Record Revenue

If you look at a full year, Cisco's revenue reach US$63.3 billion in FY2026, up approximately 12% year-on-year. GAAP net income increased 30% to US$13.3 billion.

Full-year adjusted EPS reached US$4.33, up about 14%.

Cisco also generated operating cash flow of approximately US$14.2 billion throughout the fiscal year.

The company continues to return capital to investors. In Q4 alone, Cisco distributed approximately US$3.2 billion through buybacks and dividends, including US$1.5 billion in share repurchases.

Thus, fundamentallyCSCO stock does not show any clear growth problems. 

Market questions are more focused on Cisco's valuation and ability to maintain margins as its AI business grows.

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Is Cisco's Stock Decline Something to Worry About?

A sell-off after earnings does not always mean the company's outlook has turned negative.

In Cisco's case, revenue, earnings, orders, and guidance actually show demand remains strong.

The risk lies in expectations.

While investors are already anticipating high AI growth, simply notingCisco earnings beatmay not be enough to push valuations higher.

For the next few quarters, key indicators will be gross margin, AI infrastructure revenue growth, networking orders, free cash flow, and software and services contributions.

If margins improve again while AI revenue continues to grow, the market's main concerns may be alleviated.

On the contrary, ifCisco revenuecontinues to grow but margins fall further, the market may questioning how profitable AI expansion is for companies.

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Conclusion

Cisco Q4 2026 earningsactually very strong. Revenue reached US$17.25 billion,Adjusted EPS of US$1.22, networking grew 28%, and AI infrastructure orders from hyperscalers reached US$4 billion in just one quarter.

However, Cisco stockdown because investors are paying more attention to non-GAAP gross margins.shrank from 68.4% to 66.3%.

The Q1 FY2027 guidance margin of 65%–66% also indicates that the pressure has not yet fully resolved.

So, the declineCSCO stock is not because of bad earnings.

The market is questioning whether the massive growth of AI and networking can translate into equally strong profitability.

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FAQ

What is Cisco's Q4 2026 revenue?

Cisco recorded revenue of around US$17.25 billion in Q4 FY2026, up 18% year-on-year and surpassing market estimates of around US$16.82 billion.

What is Cisco's Q4 2026 profit?

Cisco's GAAP net income was approximately US$3.9 billion, or US$0.97 per share. On a non-GAAP basis, net income was US$4.9 billion, with EPS of US$1.22.

Why did CSCO stock fall after earnings?

The primary cause highlighted by the market was a decline in non-GAAP gross margin from 68.4% to 66.3%. Increasingly heavy growth in AI and networking hardware raised concerns about profitability.

Is Cisco's AI business growing?

Yes. Cisco recorded approximately US$9.3 billion in AI infrastructure orders from hyperscalers through FY2026 and expects revenue related to that business to increase from approximately US$4 billion in FY2026 to US$7.5 billion in FY2027.

What is Cisco's guidance for FY2027?

Cisco estimates FY2027 revenue of US$72.2–US$73.4 billion with non-GAAP EPS of US$5.05–US$5.11.