Cisco raised its AI infrastructure revenue forecast to $9 billion for fiscal 2027 after a fiscal first quarter that beat analyst expectations. The shares still fell more than 6% the next day, and the report also showed a lower gross margin and slower order growth.
Cisco now expects $9 billion in AI infrastructure revenue from hyperscalers in fiscal 2027. That is up from the $7.5 billion it forecast in August and more than double the roughly $4 billion it delivered in fiscal 2026.
Quarter beats expectations
Cisco's revenue rose 24% year over year to $18.5 billion in its fiscal first quarter. Adjusted earnings per share jumped 40% to $1.40, and both figures beat analysts' expectations.
Networking revenue, which includes the switches and routers that connect AI data centers, grew 43%. 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 above analyst expectations.
According to CEO Chuck Robbins, the company is "still early in the networking super cycle" driven by AI deployments.
Shares fall after the report
Despite the strong report, Cisco shares fell more than 6% the following day. Higher memory costs and a shift toward hardware pushed the adjusted gross margin down 2.5 percentage points to 65.6%.
Product order growth also slowed to 21% from 35% in the prior quarter. After a roughly 30% gain year-to-date heading into the report, Motley Fool analyst Matt Frankel writes, it's fair to say that expectations were high.
Valuation and shareholder returns
Frankel notes that Cisco trades for about 17 times the midpoint of its fiscal 2027 earnings guidance, based on a share price of about $96. 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.
Frankel cautions that if memory costs stay high, Cisco's earnings growth could lag its revenue growth.
Source: The Motley Fool
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