CSCO reports 18% revenue growth and $1.22 EPS but faces margin compression from lower-margin AI hardware sales.
Cisco Systems (NASDAQ:CSCO) fell 7% to $115 after reporting fiscal Q4 2026 results that beat earnings estimates but raised concerns over gross margin compression. Non-GAAP EPS reached $1.22, above the $1.17 consensus, while revenue grew 18% year-over-year to $17.3 billion.
The decline in shares followed a drop in non-GAAP gross margin to 66.3% from 68.4% a year earlier, driven by a shift toward lower-margin AI hardware. Management guided Q1 FY2027 gross margins to 65%-66%, signaling continued pressure. AI infrastructure orders totaled $4 billion in the quarter and $9.3 billion for fiscal 2026.
Despite the sell-off, five firms raised price targets, including Rosenblatt to $165 and Wells Fargo to $150, citing long-term AI growth potential. Shares had rallied 63% year-to-date before the report, closing at $123.88 Wednesday.