Cisco (CSCO) stock | Earnings crash

 Cisco (CSCO) stock fell as much as 12% on February 12, 2026, its worst daily decline since 2022, following its fiscal Q2 2026 earnings report. While the company beat headline estimates for the quarter, investors were spooked by a "gloomy" profit outlook and tightening gross margins driven by a global memory chip shortage. 

The "Earnings Crash": Key Drivers

Despite reporting record Q2 revenue of $15.3 billion (up 10%) and adjusted EPS of $1.04 (beating the $1.02 estimate), several factors triggered the sell-off: 

• Margin Squeeze: Adjusted gross margin fell to 67.5% (down from 68.7% a year ago). Cisco warned this could slide further to 65.5%–66.5% in Q3 due to skyrocketing memory costs fueled by high demand for AI chips.
• Conservative Guidance: Management’s full-year 2026 GAAP EPS guidance of $3.00 to $3.08 fell short of the $3.12 analyst consensus.
• Software Slowdown: Security revenue declined 4% year-over-year as the company transitions its Splunk business from on-premise deals to cloud subscriptions.
• External Pressures: The company cited delays in federal contracts following a recent U.S. government shutdown. 

Long-Term Catalysts

Analysts remain largely optimistic about Cisco's structural shift toward AI and recurring revenue, with several maintaining "Buy" ratings and price targets as high as $100. 

• AI Infrastructure Boom: AI-related orders from hyperscalers reached $2.1 billion in Q2 alone, matching the total for all of fiscal 2025. Cisco expects over $3 billion in AI revenue for FY2026.
• Next-Gen Hardware: The launch of the Silicon One G300 and P200 chips positions Cisco to compete directly with Broadcom and Nvidia for large-scale AI data center builds.
• Campus Refresh Cycle: A multi-year, multi-billion-dollar upgrade cycle is underway as enterprises transition to Wi-Fi 7 and modern 400G/800G switching to support AI workloads.
• Shareholder Returns: Cisco raised its quarterly dividend by 2% to $0.42 per share and returned $3 billion to shareholders in Q2 through dividends and buybacks. 

Strategic Partnerships

• Nvidia Integration: Cisco is integrating its Nexus switches with NVIDIA’s Spectrum-X architecture to provide low-latency networking for enterprise AI clusters.
• Saudi AI Project: Cisco recently partnered with AMD to provide infrastructure for a major AI project in Saudi Arabia.