Key Points
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Cisco now expects $9 billion in AI infrastructure revenue from hyperscalers this fiscal year.
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Revenue grew 24% in the fiscal first quarter, and management raised its full-year guidance.
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The stock trades for about 17 times this year’s expected earnings, a lower multiple than many AI stocks.
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Cisco Systems (NASDAQ:CSCO) probably isn’t the first name that comes to mind for most investors when they hear the term “AI stocks.” Many investors think of it as a legacy tech company. But its latest earnings report suggests it belongs on the list.
Cisco’s revenue rose 24% year over year to $18.5 billion in its fiscal first quarter, and adjusted earnings per share jumped 40% to $1.40. Both beat analysts’ expectations. Networking revenue, which includes the switches and routers that connect AI data centers, grew 43%.
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The AI business is taking off
The biggest number was the forecast. Cisco now expects $9 billion in AI infrastructure revenue from hyperscalers in fiscal 2027, up from the $7.5 billion it forecast in August and more than double the roughly $4 billion it delivered in fiscal 2026. CEO Chuck Robbins said the company is “still early in the networking super cycle driven by AI deployments with enterprise adoption just beginning.”
Management also raised its full-year guidance to $74.8 billion-$75.8 billion in revenue and $5.47-$5.53 in adjusted EPS. Both of these were above analyst expectations.
So why did Cisco slip after earnings?
Despite the strong report, Cisco shares fell more than 6% the following day. And to be fair, the report had some weak spots.
For one thing, higher memory costs and a shift toward hardware pushed its adjusted gross margin down 2.5 percentage points to 65.6%. Product order growth slowed to 21% from 35% the prior quarter. After a roughly 30% gain year-to-date heading into the report, it’s fair to say that expectations were high.
Why I think Cisco is underrated
Even after this year’s run, Cisco trades for about 17 times the midpoint of its fiscal 2027 earnings guidance, based on its share price of about $96 as of this writing. That’s an attractive valuation for a company whose AI revenue is set to more than double and whose overall top line is growing at over 20%. Cisco also pays a quarterly dividend of $0.42 per share (a roughly 1.8% yield), and it bought back $2 billion of stock last quarter. Both of these should help drive total returns for investors going forward.
To be sure, Cisco’s margins are worth watching. If memory costs stay high, Cisco’s earnings growth could lag its revenue growth. But I think the market still values Cisco as a slow-growing hardware company, and that’s no longer the full picture. For investors who want AI exposure without paying a sky-high multiple, Cisco deserves a closer look.
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Matt Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems. The Motley Fool has a disclosure policy.
