Cisco stock (NASDAQ: CSCO) slumped over 7% in the pre-market trading on Thursday despite its latest quarter ticking all the right boxes on headline numbers.
The networking giant posted double-digit revenue and profit growth, topping Wall Street forecasts, but a softer-than-hoped gross margin and only in-line guidance.
The move underlined how sensitive investors have become to signs that rising memory and AI hardware costs are starting to squeeze even well-positioned beneficiaries.
Cisco stock: Earnings beat but margins miss expectations
For its fiscal second quarter of 2026, Cisco reported record revenue of $15.3 billion, up 10% from a year earlier and ahead of analyst estimates around $15.1–15.2 billion.
Adjusted, or non‑GAAP, earnings per share came in at $1.04, up 11% year on year.
Networking revenue jumped 21% as AI‑related data‑center builds and campus refresh projects drove robust demand.
The trouble spot was profitability.
Cisco’s non‑GAAP gross margin, the percentage of revenue left after the direct cost of making and delivering its gear, slipped to 67.5%, down 120 basis points from a year earlier.
That marked a step down from the 68.1% level it achieved in the prior quarter and fell short of what many on the Street had pencilled in.
Management pinned the decline mainly on higher memory costs and product mix, even as operating margin held up at 34.6%.
On the earnings call, CEO Chuck Robbins flagged “significant increases in memory prices” and said Cisco is responding with price hikes, revised contract terms, and by using its scale to secure supply.
CFO Mark Patterson echoed that view, noting that advanced purchase commitments tied to components such as memory are up sharply over the past year.
Broader market outlook
Cisco stock fell around 7–8% in after‑hours and early pre‑market trading.
The share price had been hovering near record highs into the print, which meant expectations were elevated.
Commentary from Barclays captured the mood, with analysts calling out an “ugly mix problem” and saying they “did not think memory would have had this level of weakness,” even as AI‑driven orders looked strong.
The numbers show why the reaction was so sharp despite solid growth.
Cisco booked $2.1 billion in AI infrastructure orders from hyperscale cloud providers in the quarter, up from $1.3 billion in Q1, and now expects to exceed $5 billion of AI orders for the full fiscal year.
It also raised its full‑year 2026 outlook, guiding to revenue between $61.2 and $61.7 billion and non‑GAAP EPS of $4.13 to $4.17.
Yet the margin guide shows the trade‑off.
For Q3, Cisco is forecasting a non‑GAAP gross margin of 65.5% to 66.5%, below the current quarter’s 67.5% as AI and high‑bandwidth infrastructure become a bigger part of the mix.
That is consistent with what’s playing out across much of the hardware space.
The AI build‑out is great for top‑line growth, but the expensive memory and components needed to power it can compress margins if pricing and product mix don’t keep up.
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