Cisco targets $3B in AI infrastructure revenue for FY26 as hyperscaler momentum accelerates

Earnings Call Insights: Cisco Systems, Inc. (CSCO) Q1 2026

MANAGEMENT VIEW

* Charles Robbins, Chairman & CEO, highlighted a strong start to fiscal 2026, with both revenue and earnings per share surpassing the high end of guidance. He reported "record Q1 revenue, putting Cisco on track to deliver our strongest year yet as indicated in our guidance for the full year." Product revenue increased 10%, "driven by robust demand for our AI infrastructure and campus networking solutions." AI infrastructure orders from hyperscalers totaled $1.3 billion in Q1, and Robbins stated, "We expect to recognize roughly $3 billion in AI infrastructure revenue from hyperscalers in fiscal year '26."
* Robbins emphasized the multiyear refresh opportunity in campus networking, with next-generation products like the Cat9K series experiencing "growing demand" and all "next-generation solutions, including smart switches, secure routers and Wi-Fi 7 wireless products... ramping faster than in prior product launches."
* The company announced strategic partnerships, such as an expanded collaboration with G42 and the UAE, and furthered alignment with NVIDIA, launching the N9100 switch based on Spectrum-X silicon.
* In security, Robbins acknowledged that growth in next-generation products was "partially offset by a decline in our prior generation platforms." He also cited a shift in Splunk’s revenue mix toward cloud subscriptions, impacting security revenue growth in Q1, but described it as a "timing issue."
* Mark Patterson, Executive VP & CFO, stated: "We delivered a strong quarter to launch our new fiscal year with revenue, operating margin and earnings per share all above the high end of our guidance, coupled with solid gross margin and operating cash flow."

OUTLOOK

* Patterson provided Q2 guidance, expecting revenue in the range of $15 billion to $15.2 billion, non-GAAP gross margin between 67.5% and 68.5%, and non-GAAP EPS ranging from $1.01 to $1.03.
* Full-year fiscal 2026 revenue guidance was set at $60.2 billion to $61 billion, with non-GAAP EPS expected to range from $4.08 to $4.14.
* Patterson clarified, "These assumptions remain unchanged from our prior guidance with the exception of the China fentanyl tariff being reduced from 20% to 10%."

FINANCIAL RESULTS

* Cisco reported total revenue of $14.9 billion for the quarter, an 8% year-over-year increase. Non-GAAP net income was $4 billion, up 9%, and non-GAAP EPS was $1, up 10%.
* Product revenue reached $11.1 billion, up 10%, and service revenue was $3.8 billion, up 2%. Networking revenue grew 15%, while security declined 2% and collaboration declined 3%. Observability rose 6%.
* Total RPO ended at $42.9 billion, up 7%; product RPO grew 10%. Total ARR was $31.4 billion, up 5%.
* Non-GAAP gross margin was 68.1%. Operating cash flow was $3.2 billion. $3.6 billion was returned to shareholders through dividends and share repurchases.

Q&A

* Aaron Rakers, Wells Fargo: Asked about the evolution of Cisco’s webscale AI opportunity and the enterprise pipeline. Robbins clarified that "we're expecting at least 2x the orders that we received in fiscal year '25 from that same set of [hyperscaler] customers," and noted a $2 billion+ pipeline for enterprise, Neocloud and sovereign customers for the rest of the fiscal year, with $200 million booked in Q1.
* Meta Marshall, Morgan Stanley: Inquired about drivers of AI order strength and DRAM pricing. Robbins said "most of what we saw in Q1 was just a deepening of existing use cases," while Patterson noted rising memory prices are reflected in guidance.
* Tal Liani, BofA Securities: Questioned growth outside hyperscaler AI. Robbins stated that "if you normalize out the hyperscaler growth in Q1, the rest of the business grew 9% from an orders perspective."
* Benjamin Reitzes, Melius Research: Asked about multiyear cycle confidence. Robbins cited "faster-than-historic ramp" for new product families and emphasized enterprise efforts to modernize for AI workloads.
* Other analysts pressed on product penetration, Splunk cloud mix, campus/government refresh, optics demand, margins for AI sales, and supply chain capacity. Management provided detailed responses, often quantifying progress and emphasizing operational readiness.

SENTIMENT ANALYSIS

* Analysts focused on sustainability of AI-driven growth, normalization of security revenues, and the durability of new product cycles. Several questions were probing, especially around security, mix shifts, and margin impacts, reflecting a neutral to slightly positive tone overall.
* Management maintained a confident and constructive tone in both prepared remarks and Q&A, frequently referencing strong demand and pipeline visibility. Robbins used phrases like "we have a lot of confidence."
* Compared to the previous quarter, both management and analysts displayed increased confidence, especially on AI momentum, with more detailed questions on execution risks rather than demand uncertainty.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal 2026 revenue and EPS was raised versus the prior quarter, with the range moving to $60.2 billion–$61 billion and $4.08–$4.14, respectively, up from $59 billion–$60 billion and $4–$4.06.
* AI infrastructure revenue guidance from hyperscalers increased to $3 billion for FY26, up from $2 billion total orders in FY25. The enterprise pipeline for AI products also expanded.
* Product orders growth accelerated from 7% to 13% year-over-year. Networking remained the primary growth driver, while security shifted from 9% growth to a 2% decline due to mix and timing shifts.
* Management’s tone was more confident and forward-looking, signaling conviction in the multiyear refresh and AI opportunity, while analysts became more focused on execution and normalization timelines.

RISKS AND CONCERNS

* Management acknowledged supply chain and cost pressures, particularly in memory and optics, but confirmed these are reflected in guidance.
* The shift of Splunk revenue mix to cloud subscriptions temporarily weighed on security revenue, described as a "timing issue" by Robbins and Patterson.
* Analysts pressed on growth sustainability outside AI, security normalization, and competition in campus networking.

FINAL TAKEAWAY

Cisco management emphasized that strong AI infrastructure demand, a multiyear campus refresh cycle, and expanded strategic partnerships are positioning the company for its "strongest fiscal year yet" in 2026. With elevated guidance, record product orders, and a robust pipeline in both hyperscaler and enterprise segments, management signaled high confidence in capturing growth opportunities, while acknowledging near-term timing effects in security and input cost pressures that are already accounted for in their outlook.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/csco/earnings/transcripts]

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