> ## Content Index > Fetch the complete content index at: https://us.mikirduit.com/llms.txt > Use this file to discover other available public pages before exploring further. # Cisco Stock Keeps Falling Despite Surging Earnings. Is CSCO Finally Cheap? - URL: https://us.mikirduit.com/cisco-stock-keeps-falling-despite-surging-earnings-is-csco-finally-cheap/ - Published: 2026-09-28T09:19:19.000Z - Updated: 2026-09-28T09:19:19.000Z - Description: Cisco’s AI business is booming, but falling margins and rising inventory are pressuring CSCO. Is the recent selloff finally creating an opportunity? - Author: Surya Rianto - Tags: Stock Insight, Stocks **Mikirduit —** Cisco Systems Inc. (NASDAQ: CSCO) shares have come under pressure even as the networking giant posted results that beat expectations. Its artificial-intelligence infrastructure business is expanding rapidly, but investors are becoming more concerned about margins, rising inventories and whether the current networking boom is approaching its peak. That raises a bigger question: Has the selloff created an opportunity in Cisco stock? ### 3 Key Takeaways - **Cisco’s AI infrastructure business is scaling quickly.** Hyperscaler AI orders reached about **$9.3 billion in FY2026**, while Cisco is targeting roughly **$7.5 billion in AI infrastructure revenue in FY2027**. - **The biggest concern is margin quality, not demand.** Cisco’s product gross margin fell as growth shifted toward hardware-heavy products such as Silicon One systems, switches, optics and Acacia, while inventory and purchase commitments also surged. - **The recent selloff improves the risk-reward, but CSCO is not obviously cheap.** At around $106–$107, the stock sits below our previous buy range, with a base-case fair value around **$121** and a bull-case scenario near **$132**. Cisco reported a roughly 23% increase in non-GAAP net income to $4.87 billion in the fourth quarter of fiscal 2026\. Revenue rose about 18% to $17.25 billion. Networking remained the company’s largest business, with revenue climbing 28% to $9.79 billion. Other businesses also posted double-digit growth. Security revenue rose roughly 14% to $2.23 billion, while collaboration revenue increased 12% to $1.17 billion. Demand was equally strong. Total product orders jumped about 35% from a year earlier. Hyperscalers were a major driver of that growth, but they weren’t the whole story. Excluding hyperscaler orders, Cisco’s orders still grew about 25%. That suggests Cisco’s momentum isn’t solely dependent on Microsoft, Amazon, Google and other large cloud operators. By customer segment, Service Provider & Cloud posted the strongest growth at 95%. Public Sector orders increased 30%, while Enterprise rose 21%. On the surface, those numbers point to a business that remains firmly in expansion mode. The problem is that Wall Street isn’t looking only at how fast Cisco can grow. Investors are increasingly asking how much margin the company can preserve—and how long the current growth cycle can last. [XRT vs. XLU: Which State Street ETF Offers Better Rebound Potential?Two State Street sector ETFs — SPDR S&P Retail ETF (XRT) and Utilities Select Sector SPDR Fund (XLU) — are trading near multi-year lows, each pointing to a potential rebound of 14% to 38% over the medium term. Here’s how their risk, cost, and upside profiles compare.![](https://us.mikirduit.com/content/images/icon/Mikirduit-757285b7-e882-4a27-87e2-fa98f8d3e9a1.jpg)Mikirduit USSurya Rianto![](https://us.mikirduit.com/content/images/thumbnail/ETF-discount-344fdf57-a054-4ee9-812b-e0b0fc38a9a9.png)](https://us.mikirduit.com/xrt-vs-xlu-two-state-street-etfs-near-cyclical-lows-are-flashing-rebound-signals/) ## AI Is Becoming a Major Growth Engine for Cisco One of Cisco’s biggest growth opportunities is the buildout of AI infrastructure. Cisco doesn’t sell GPUs the way Nvidia does. Its role is different: It supplies the networking infrastructure that connects GPUs, racks, clusters and entire data centers. That role becomes increasingly important as AI workloads require far more network capacity than traditional data-center applications. Cisco says traditional data-center interconnects typically require about 1,000 to 2,000 coherent ports. AI scale-across architectures, by contrast, can require roughly 12,000 to 32,000 coherent ports. That means the bandwidth and connectivity requirements for AI infrastructure can be several times greater than those of a conventional data center. Cisco’s order book reflects that shift. During fiscal 2026, the company recorded about **$9.3 billion in AI infrastructure orders from hyperscalers**, roughly 4.5 times the prior-year level. Only about $4 billion of those orders had been recognized as revenue in fiscal 2026. That leaves billions of dollars in orders that could flow through the income statement in subsequent periods. Cisco is targeting roughly **$7.5 billion in AI infrastructure revenue in fiscal 2027**. If it reaches that target, AI will no longer look like a side business. It will be one of Cisco’s major growth engines. ## Silicon One Makes Cisco More Than a Switch Vendor Cisco’s position in AI infrastructure is also strengthened by its internally developed Silicon One networking chips. Silicon One serves as the brains behind high-performance switches and routers used in data centers and AI networks. It isn’t a direct competitor to Nvidia’s GPUs. Its job is different: moving data efficiently through the network. Cisco already has multiple generations of Silicon One, including the P200, with capacity of about 51.2 terabits per second, and the G300, with bandwidth of roughly 102.4 Tbps. The company plans to extend Silicon One across more of its high-performance networking portfolio through 2029. That matters because Cisco is trying to capture more value from each AI deployment. Rather than selling only switches and routers, the company can increasingly sell silicon, networking systems, optics, software, security and observability products to the same customer. That marks an important change in Cisco’s business model. The company was once best known simply as a switch-and-router vendor. It is increasingly trying to position itself as a broader infrastructure-stack provider. ## Acacia Is Starting to Show Its Strategic Value Cisco’s 2021 acquisition of Acacia Communications is also looking more important as AI infrastructure expands. Acacia specializes in optical networking technology that converts digital data into optical signals, allowing massive amounts of information to travel over fiber across long distances. As AI clusters get larger and data centers become more distributed, the need for high-capacity optical networking rises as well. Cisco is already seeing evidence of that demand. During the fourth quarter of fiscal 2026, Acacia generated more than **$1 billion in AI infrastructure-related orders**. That figure is significant because it shows AI demand spreading beyond switches and routers into the optical layer of the network. As demand grows for coherent optics, 800G and 1.6T connectivity—and potentially co-packaged optics over time—Acacia could become one of Cisco’s most strategically valuable assets. ## Splunk Opens Another Path to AI Monetization Cisco’s AI opportunity isn’t limited to hardware. Following its acquisition of Splunk, the company is also trying to monetize AI through security and observability. That could matter more as companies deploy growing numbers of AI agents. The more AI agents an organization runs, the harder it becomes to monitor computing costs, token usage, security and system performance. Splunk is trying to become part of that control layer. Cisco has introduced new Splunk capabilities designed to monitor AI usage, including token costs and AI-agent activity. The company is also combining Splunk with AI infrastructure through **Cisco AI POD for Splunk**. The offering combines Cisco networking, Nvidia accelerated computing and Splunk for businesses that want to run AI privately, on premises or in environments with strict security requirements. This expands Cisco’s AI investment case beyond hyperscaler data-center construction. The company is now also targeting enterprise AI adoption through networking, security, observability and software. If that strategy works, Cisco could generate more revenue per customer while also increasing the contribution from higher-margin software. There is an important caveat. Splunk’s AI-related monetization still isn’t large enough to prove that this strategy has succeeded. For now, Splunk should be viewed more as upside optionality than as a major near-term earnings driver. ## A $100 Billion Network-Refresh Opportunity Cisco also has a major opportunity outside AI. Management sees more than $100 billion of potential demand from network-refresh activity. Campus networks include infrastructure used in offices, factories, hospitals, universities, bank branches and other operating facilities. A large installed base of older networking equipment is entering a replacement cycle. The rollout of Wi-Fi 7 could accelerate that process because it requires faster connectivity, including multi-gigabit Ethernet. That means Cisco’s growth story doesn’t depend entirely on AI data centers. If the enterprise network-refresh cycle accelerates at the same time AI infrastructure spending remains strong, Cisco could benefit from two growth engines at once. ## So Why Is Cisco Stock Falling? One of investors’ biggest concerns is gross margin. On a non-GAAP basis, Cisco’s gross margin fell to about 66.3%, from 68.4% a year earlier. Product gross margin dropped to around 64.8% from 67.5%. The biggest issue is product mix. Much of Cisco’s recent growth is coming from hardware-heavy products such as Silicon One systems, switches, optics, Acacia products and optical systems. Hardware generally carries lower margins than software. That means Cisco can report strong revenue growth without necessarily improving the quality of its earnings if hardware becomes too large a share of the mix. The company is also dealing with higher component costs, including memory. That combination—more hardware revenue and higher component costs—helps explain why investors haven’t fully rewarded Cisco for its rapid growth. ## Cisco’s Inventory Has Jumped Nearly 80% Inventory is another risk investors should watch. Cisco’s inventory climbed nearly 80% to about **$5.69 billion**. More strikingly, inventory purchase commitments more than doubled to roughly **$17.17 billion**. There are two ways to interpret those numbers. The bullish interpretation is that Cisco is securing chips, memory, optics and other critical components because AI demand remains exceptionally strong. If that is the case, higher inventory is simply preparation for future growth. There is also a more cautious interpretation. If hyperscalers delay data-center projects, cut capital spending, change network architectures or move to different suppliers, those inventories could become a liability. That makes inventory one of the most important indicators to watch in coming quarters. As long as AI orders and revenue continue to rise rapidly, higher inventory can be justified. The problem would begin if inventory stays elevated while order growth starts to slow. ## Wall Street Is Starting to Question Peak Growth A newer concern is that Cisco’s networking growth may be getting closer to a peak. Piper Sandler cut its price target for Cisco to $125 from $132 while maintaining a Neutral rating. The concern wasn’t that demand had suddenly collapsed. Hardware demand remains strong. The question is how long Cisco can sustain this pace of growth. That distinction matters. Investors are no longer debating whether AI networking is growing. It clearly is. They are increasingly debating how durable that growth will be—and what valuation multiple Cisco deserves once growth begins to normalize. If investors believe high-double-digit growth can continue for several years, a premium valuation becomes easier to justify. If growth slows sooner than expected, Cisco’s multiple could contract even if earnings continue to rise. ## Hyperscaler Concentration Is Still a Risk Even as Cisco expands its enterprise exposure, hyperscalers remain crucial customers for its AI infrastructure business. That creates concentration risk. If a major customer delays a data-center buildout, cuts capital expenditures, shifts to another vendor or develops more networking technology internally, Cisco’s growth could become more volatile. Competition is also intensifying. Cisco isn’t merely competing with traditional networking companies. It is also up against Arista Networks, Broadcom, Marvell and custom silicon developed by large cloud providers. Cisco’s advantage is its ability to offer silicon, networking systems, optics, security and software under one portfolio. But that advantage only matters if Cisco remains competitive as the next generation of networking hardware arrives. ## Tariffs and Component Costs Add Another Layer of Risk Cisco also faces uncertainty from import tariffs and rising production costs. That risk becomes more meaningful as the company’s revenue mix shifts toward hardware. A larger hardware contribution means margins become more sensitive to memory prices, optical-component costs, logistics, tariffs and broader supply-chain conditions. AI spending can therefore create a paradox for Cisco. It can accelerate revenue growth while simultaneously pressuring gross margins if input costs rise too quickly. ## Cisco’s Fiscal 2027 Guidance Remains Strong Cisco’s fiscal year begins in August and ends in July. Fiscal 2027 therefore runs from August 2026 through July 2027. Management is guiding to roughly 15% revenue growth for the full year, above the approximately 12% growth recorded in fiscal 2026. Cisco also expects non-GAAP earnings per share to grow about 17%. That suggests management still expects earnings to grow faster than revenue. For the first quarter of fiscal 2027, Cisco expects revenue of roughly $18 billion to $18.2 billion. If achieved, that would represent growth of about 20.9% to 22.3%. The midpoint of non-GAAP EPS guidance is about $1.33 a share, representing growth of roughly 33%. Fundamentally, the outlook remains strong. The bigger question is valuation—and whether that rate of growth can be sustained. ## Is Cisco Stock Finally Getting Cheap? By late September 2026, Cisco shares were trading around $106 to $107. That puts the stock below our previous buy range of $111.31 to $117.12. From a price perspective, Cisco has clearly become more interesting. But that doesn’t necessarily make the stock cheap. One way to value Cisco is to apply different forward price-to-earnings multiples to its potential fiscal 2027 earnings. Our scenarios are as follows: - **Bear case:** 18 times earnings, implying a fair value of about **$90.90 a share**. - **Conservative case:** 20 times earnings, implying roughly **$101**. - **Base case:** 24 times earnings, implying about **$121**. - **Bull case:** 26 times earnings, implying roughly **$132**. - **Euphoria case:** If the AI boom intensifies and investors continue to award Cisco a premium multiple, 28 times earnings could imply a price around **$143**. Those scenarios suggest Cisco still has upside. But much of that upside depends on the company sustaining rapid AI-networking growth while protecting margins. At around $106 to $107, the market appears to be pricing in some risk that Cisco’s growth won’t remain as strong as it was in fiscal 2026. ## What Should Investors Watch Next? Several indicators will matter most from here. The first is Cisco’s progress toward its roughly $7.5 billion AI infrastructure revenue target for fiscal 2027. The second is product gross margin. If revenue keeps rising while margins continue to fall, investors may question the quality of that growth. Third is inventory and purchase commitments. Elevated inventory can be justified as long as orders remain strong. Fourth is order growth outside hyperscalers. Enterprise and public-sector demand will be important in showing that Cisco isn’t overly dependent on a handful of giant cloud customers. Finally, investors should watch Splunk monetization. If Cisco can attach more security and observability software to AI deployments, the company’s revenue mix could improve over time. ## The Bottom Line Cisco’s stock decline doesn’t mean the underlying business is deteriorating. Revenue, earnings and orders are still growing rapidly. The issue is that investor expectations are also high. A growing share of Cisco’s expansion is coming from AI infrastructure hardware, which carries lower margins than software. At the same time, inventory and purchase commitments have risen sharply. Yet Cisco’s opportunity set is also expanding. Silicon One strengthens its position in networking silicon. Acacia gives the company exposure to booming demand for optical networking. Splunk expands its reach into AI security and observability. And the network-refresh cycle provides another potential source of growth outside hyperscalers. In our view, Cisco’s recent correction has made the risk-reward profile more attractive. But the company still needs strong growth to justify its valuation. Our current strategy: **BUY AREA: $106–$112** **Medium-term target: $121–$132** **Risk price: around $101** A move toward $143 would require a much stronger scenario: AI demand remaining elevated, gross margins stabilizing, Splunk monetization gaining traction and investors continuing to assign Cisco a premium valuation. The key question for Cisco investors is therefore no longer whether the company benefits from the AI boom. It is whether Cisco can turn today’s AI hardware surge into durable earnings growth, healthier margins and a larger stream of software revenue over the next several years. ## **The numbers are only the beginning.** Every week, Mikirduit US breaks down earnings, valuations, catalysts, and risks across U.S. stocks—so you can see what the market may be missing. [**Get the Weekly Briefing**](https://us.mikirduit.com/xrt-vs-xlu-two-state-street-etfs-near-cyclical-lows-are-flashing-rebound-signals/#/portal/signup)