CSCO stock | Cisco Stock Drops Again as AI Hardware Squeezes Margins

Cisco Stock Drops Again as AI Hardware Squeezes Margins

GURU Focus

Cisco's AI infrastructure orders are exploding, but lower product margins are testing how profitably it can convert that demand.

 the networking and cybersecurity giant, delivered record numbers. Wall Street sold the stock anyway. Shares plunged 8.4% Thursday and slipped another 2% Friday morning despite revenue jumping 18% to $17.3 billion and adjusted earnings climbing 23% to $1.22 per share. That tells you almost everything. Cisco's problem is not growth. It is expectations. Investors have already priced in a monster AI opportunity, and monster expectations demand monster execution.

The AI engine is certainly roaring. Hyperscaler AI infrastructure orders hit $4 billion in the quarter and $9.3 billion for fiscal 2026. Cisco turned roughly $4 billion of that demand into revenue and expects AI infrastructure revenue to rocket to $7.5 billion in fiscal 2027. Networking product orders surged 40%, extending double-digit growth to eight straight quarters. But here comes the uncomfortable part. Adjusted product gross margin dropped to 64.8% from 67.5% a year earlier as hardware became a bigger piece of the mix. Cisco is selling more AI gear. A lot more. The question is how much of that explosive growth ultimately drops to the bottom line.

And the valuation leaves little room for excuses. Cisco traded at $111.205 on Aug. 14 versus a GF Value™ estimate of just $71.61. That puts the stock 55.29% above GF Value™. That is a massive gap. Management is guiding fiscal 2027 revenue to $72.2 billion to $73.4 billion and adjusted earnings to $5.05–$5.11 per share, while AI infrastructure revenue could jump roughly 87.5%. Great growth. Expensive stock. Cisco now has to prove that AI can do more than inflate the order book and top line. It has to protect margins and turn those billions of AI dollars into serious profit. At this valuation, good execution may not be good enough.