Cisco shares dropped in premarket trading on Thursday, a day after the company posted record fiscal fourth-quarter results. Wall Street analysts are focused less on the headline revenue beat and more on the gross-margin pressure that came with it.
Cisco shares fell 6% in premarket trading on Thursday, following Wednesday's gain of almost 3%. The stock is up about 60% since the start of the year.
Record revenue, AI-driven demand
The technology conglomerate posted fiscal fourth-quarter revenue of $17.3 billion, up 18% year-on-year and above analysts' estimate of $16.8 billion, according to FactSet. Cisco said demand skyrocketed amid an artificial-intelligence "supercycle," with hyperscalers accelerating the construction of data centers.
The company also guided for revenue between $72.2 billion and $73.4 billion in 2027, above Wall Street expectations of $69.1 billion.
Analysts flag squeezed margins
Goldman Sachs analysts, led by Michael Ng, said investors could be concerned about gross margins. Cisco reported a gross margin of 66.3% for the quarter, down from 68.4% a year earlier, and its guidance of 65% to 66% for next year came in below the consensus estimate of 66.4%.
The Goldman analysts wrote that "the increased concentration should pressure gross margins," even as earnings-before-interest-and-tax margins should face less pressure because hyperscaler deals carry low gross margins but require marginal incremental operating expenditure. Goldman kept its 12-month price target at $125.
Price targets hold steady
Evercore ISI, which is bullish on Cisco, maintained its price target of $150. In a note on Wednesday, the firm said it expects Cisco to benefit as companies shift back toward physical servers instead of the public cloud and grow willing again to pay more for specialized software.
Citigroup kept its price target unchanged at $139, noting that order growth held at 35% year-on-year, matching the prior quarter's pace. The bank also said it expects networking sales growth to slow in 2027.
Source: MarketWatch
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