CSCO Networking Hardware · AI infrastructure · Dividend payer · Mega cap · Thesis updated June 10, 2026

AI orders put Cisco back in play

Cisco's Q3 FY26 revenue grew 12%, led by Networking growth of 25% from AI infrastructure and campus upgrades.
Management raised the FY26 hyperscaler AI order forecast to approximately $9 billion and expects about $4 billion of FY26 AI revenue.
Demand was broader than hyperscalers, with total product orders excluding hyperscalers up 19% year over year.
Security still has to prove it can grow, because reported Q3 FY26 revenue was flat during the Splunk cloud shift.
Margins are the main price debate: Q3 FY26 product gross margin fell 2.5 percentage points, hurt by mix and memory costs.

01 Running thesis

AI demand changes the story

Cisco's latest quarter made the bull case easier to see. Management lifted its FY26 AI infrastructure order forecast to about $9 billion from a prior view of $5 billion. That is 4.5 times the FY25 total. It also said FY26 AI infrastructure revenue from hyperscalers should be about $4 billion, with early FY27 AI revenue visibility of at least $6 billion.

The good news is wider than AI. Q3 FY26 total product orders grew 35%. Excluding hyperscaler orders, product orders still grew 19%. Campus networking orders hit a record and grew more than 25%, helped by customers replacing older switches, routers, and wireless gear.

The pushback is also clear. Security revenue was flat in Q3 FY26, partly because Splunk is moving from large on-premise deals to more cloud subscriptions. Gross margins are lower than Cisco's old profile because AI hardware and memory costs carry pressure. The stock can work if AI revenue arrives and margins hold, but it still needs proof in Security and profitability.

May 2026→Cisco's Q3 FY26 10-Q confirmed the earnings story. Networking and AI remained strong, Security stayed flat, and the filing added detail on memory costs and larger supply commitments.

May 2026▲Q3 FY26 results strengthened the thesis. Management lifted the FY26 AI infrastructure order forecast to about $9 billion and said product orders excluding hyperscalers grew 19%.

Feb 2026→The Q2 FY26 10-Q confirmed the stronger AI and campus demand story. It also made memory cost and supply constraint risk more explicit.

Feb 2026▲Q2 FY26 showed faster revenue growth, with product revenue up 14% and Networking up 21%. Management raised the FY26 AI order outlook to more than $5 billion, while margins began to show pressure from memory and mix.

Nov 2025→The Q1 FY26 10-Q confirmed Networking growth of 15% and the Splunk cloud transition in Security. It also highlighted rising purchase commitments tied to Cisco Silicon One.

Nov 2025▲Q1 FY26 improved the outlook as AI infrastructure orders accelerated and the campus refresh cycle began to show up in results. Security was weaker, but management pointed to Splunk ARR growth as support for the transition.

Sep 2025→The FY25 10-K showed Splunk reshaping the mix, with Security and Observability growth offsetting a Networking decline. It also raised the importance of AI-related supply commitments as a risk.

Aug 2025▲FY25 ended with more than $2 billion of AI orders, double the initial target, and about $1 billion recognized as revenue. That made Cisco's AI opportunity more credible heading into FY26.

02 Business model

Hardware reach, software pull

Cisco makes money by selling networking gear, security products, collaboration tools, observability software, and related support. Some revenue comes upfront when hardware or software is delivered. More revenue comes over time from support contracts, SaaS, and subscriptions.

The company sells through its own sales force and a large partner network. Those partners include distributors, service providers, systems integrators, and resellers. This reach is a major strength because big customers often buy technology through trusted local or global partners.

Cisco uses contract manufacturers instead of owning most factory capacity itself. That keeps the model flexible, but it also creates risk when demand swings. The AI buildout has raised purchase commitments for Silicon One, memory, and related products, so a sudden demand slowdown could leave Cisco with too much inventory or lower margins.

03 Product portfolio

What Cisco sells

Growth engine

Networking

This is Cisco's core business: switching, routing, wireless, servers, Silicon One, and optics. Q3 FY26 Networking revenue grew 25%, driven by AI infrastructure and campus refresh demand.

Option

Security

This includes network security, identity and access management, SASE, threat detection, and Splunk. The long-term idea is stronger security software, but reported Q3 FY26 revenue was flat.

Steady

Collaboration

This includes Webex, collaboration devices, contact center, and CPaaS. Q3 FY26 revenue fell 1%, with devices partly offsetting weaker Webex demand.

Option

Observability

This helps customers see how apps, networks, and systems are performing. Q3 FY26 Observability revenue grew 3%, helped by ThousandEyes and partly offset by Splunk weakness.

Cash cow

Services and support

Cisco provides technical support and advanced services over the life of its products. Services were 23.5% of Q3 FY26 revenue and tend to be steadier than product sales.

04 Business segments

Where revenue comes from

Americas60%growing fast

EMEA26%modest

APJC14%modest

Cisco reports its main operating segments by geography. The mix below uses total revenue for Q3 FY26, when Americas was 60.4%, EMEA was 25.6%, and APJC was 14.0% of revenue.

05 Risk factors

What could go wrong

AI orders do not turn into revenue

High impact · Medium odds

The bull case leans on about $9 billion of expected FY26 AI infrastructure orders from hyperscalers. This business can be lumpy, because a few very large cloud customers can place big orders in uneven timing. If shipments slip or customers slow builds, Cisco's growth could fade fast.

We watchTrack recognized AI infrastructure revenue against the about $4 billion FY26 target and the at least $6 billion FY27 early outlook.

Margins stay below the old Cisco profile

High impact · Medium odds

Q3 FY26 product gross margin fell 2.5 percentage points to 61.9%. Cisco blamed product mix and higher memory costs, partly offset by productivity gains. Even if memory pressure calms, AI hardware may carry lower margins than Cisco's historical mix.

We watchWatch product gross margin, management's memory cost comments, and whether Q4 gross margin stabilizes near the guided midpoint of 66% on a non-GAAP basis.

Security remains stuck in transition

Medium impact · Medium odds

Security should be a major software growth area after Splunk, but reported Q3 FY26 Security revenue was flat. Growth in new and refreshed products was offset by legacy declines and the Splunk shift from on-premise deals to cloud subscriptions. If this lasts too long, the market may question the Splunk deal and Cisco's software story.

We watchWatch reported Security revenue growth, Splunk cloud progress, and whether the organic security portfolio approaches double-digit growth by year-end.

Supply commitments become a burden

High impact · Medium odds

Cisco increased inventory purchase commitments to $16.033 billion at April 25, 2026, up 111% from the end of fiscal 2025. Inventory also rose 49%. These commitments help secure supply for AI and memory, but they raise the risk of excess inventory if demand changes.

We watchWatch inventory, purchase commitments, and any excess or obsolete inventory charges in future filings.

Cheaper rivals and white box hardware take share

Medium impact · Medium odds

Cisco faces price pressure from many networking and security vendors, including lower-cost Asian suppliers and white box hardware makers. Software-defined networking can also move value away from branded hardware. Strong AI and campus demand can hide this risk for a while, but pricing pressure could show up in margins or slower orders.

We watchWatch product order growth excluding hyperscalers, pricing comments, and product gross margin by quarter.

06 Quick answers

In one breath

Is Cisco an AI stock now?

Cisco is not a chipmaker like the biggest AI names, but AI infrastructure has become a major growth driver. Management now expects about $9 billion of FY26 AI infrastructure orders from hyperscalers.

Why is Cisco's Security segment not growing faster after Splunk?

Cisco says customers are shifting Splunk from large on-premise deals to cloud subscriptions. That can make near-term reported revenue look weak even if the customer base is moving to a more recurring model.

What is the biggest number to watch next?

Watch AI revenue recognition. Cisco needs to turn its large order book into about $4 billion of FY26 AI infrastructure revenue and show that FY27 can reach at least $6 billion.

Why do margins matter so much for Cisco?

Cisco has long been valued for strong profitability and cash returns. If AI hardware growth comes with lower gross margins, faster revenue may not translate into as much profit as investors expect.