Cisco ($CSCO) reported its fourth quarter and fiscal year 2026 after the close on August 12. The quarter itself was a record: revenue of $17,252M, up 17.6% year over year, GAAP diluted EPS of $0.97 against $0.64, and non-GAAP EPS of $1.22, all above the high end of the company's own guidance.
The number that should stop you is not in the quarter. It is the year ahead:
FY 2027 Guidance: Revenue: $72.2 billion to $73.4 billion
Against fiscal 2026's $63,325M, that is +14.0% to +15.9%. A forty-year-old networking incumbent that just grew 11.8% has guided itself to accelerate.
The quarter
| $M | Q4 FY2025 | Q4 FY2026 | YoY |
|---|---|---|---|
| Product revenue | 10,886 | 13,459 | +23.6% |
| Services revenue | 3,787 | 3,793 | +0.2% |
| Total revenue | 14,673 | 17,252 | +17.6% |
| Gross margin (GAAP) | 9,280 | 11,063 | +19.2% |
| Operating income (GAAP) | 3,087 | 4,264 | +38.1% |
| Net income (GAAP) | 2,550 | 3,859 | +51.3% |
| Diluted EPS (GAAP) | 0.64 | 0.97 | +51.6% |
| Diluted EPS (non-GAAP) | 0.99 | 1.22 | +23.2% |
Fiscal 2026 in total: revenue $63,325M (+11.8%), GAAP EPS $3.33 (+30.6%), non-GAAP EPS $4.33 (+13.7%).
Note the split in the top two rows. Product revenue grew 23.6%. Services revenue grew 0.2% — six million dollars on a $3.8B base. The recurring half of Cisco, the half the last five years of strategy was about, contributed nothing to the growth quarter.
What is actually driving it
Cisco gave the demand figures plainly in the news summary:
- Total product orders up 35% year over year — up 25% excluding hyperscalers, with double-digit growth in every geography and customer market.
- Networking product orders up 40%, the eighth consecutive quarter of double-digit growth.
- $4 billion of AI infrastructure orders from hyperscalers in Q4, bringing fiscal 2026 to $9.3 billion.
- AI infrastructure revenue of approximately $4 billion in FY2026, with $7.5 billion expected in FY2027.
Two of those deserve to be read against each other. Cisco took $9.3B of AI orders and recognised ~$4B of AI revenue in the same year. Orders are running at better than 2x recognized revenue, and the company has told you where the gap goes: an 88% step-up in AI revenue next year. That single line is roughly $3.5B of the $8.9–10.1B of guided fiscal 2027 revenue growth.
The 25% ex-hyperscaler order growth is the other half, and it is the less-discussed one. Strip out the AI buildout entirely and the enterprise base still accelerated into double digits across every geography.
Three further figures came only on the call, and each sharpens the picture:
- AI infrastructure was about 6% of total FY2026 revenue, up from less than 2% in FY2025. This is the honest scaling of the story. Tripling as a share of revenue is a real change; 6% of a $63B company is still not what moves the consolidated number.
- Product orders from service provider and cloud customers grew 95%, with four of the top hyperscalers each growing AI infrastructure orders in the triple digits. The blended +35% in the release conceals an order book that is running at two very different speeds.
- A second AI order pool exists that the release never mentions: over $400M in Q4 and over $1B for the fiscal year from neocloud, sovereign and enterprise customers, entirely separate from the $9.3B hyperscaler figure.
That last one matters for the durability question. A business dependent on four hyperscalers is a different risk from one with a billion-dollar tail of sovereign and enterprise buyers, and Cisco has one of each.
The margin is paying for it
In the same release, non-GAAP gross margin fell:
| Gross margin | Q4 FY2025 | Q4 FY2026 | Change |
|---|---|---|---|
| Total (GAAP) | 63.2% | 64.1% | +0.9 pts |
| Total (non-GAAP) | 68.4% | 66.3% | −2.1 pts |
| Product (non-GAAP) | 67.5% | 64.8% | −2.7 pts |
| Services (non-GAAP) | 70.8% | 71.6% | +0.8 pts |
The two total lines moved in opposite directions, which is unusual enough to be worth naming. On a GAAP basis Cisco looks like it expanded margin; on the basis the company itself guides to and the market models, it gave back 2.1 points, and the product line gave back 2.7.
This is not a mystery. Selling networking hardware into hyperscaler AI buildouts is lower-margin revenue than selling switches and subscriptions into enterprises. The mix is now large enough to move the consolidated number. Q1 FY2027 non-GAAP gross margin is guided to 65%–66% — below where the just-reported quarter landed, and well below the 68.4% of a year ago.
So the acceleration and the margin compression are the same fact seen twice. Cisco is buying growth with mix, and it has guided you to expect more of it.
On the call, CFO Mark Patterson said so directly, and made the argument for why it does not matter:
"We are in this networking super cycle, which we are very early in the cycle, and we are shipping high volumes of hardware, which is increasing the revenue mix to hardware considerably. … So you should expect a slight gross margin headwind as we move through FY 2027 as we address these very high growth opportunities."
"This business, because of the magnitude of it and the growth rates, it allows us to take, even in some cases, a lower margin business from a gross margin perspective that actually turns out to be highly profitable because we do not have to add incremental expenses to go gather that business."
That is the whole defence in two sentences: gross margin falls, operating margin holds at a guided 35.5–36.5%, because the incremental cost of serving a hyperscaler is close to zero. It is a coherent argument. It is also an argument that only works while the orders keep coming.
The market did not take it well. Cisco beat on both lines — adjusted EPS of $1.22 against roughly $1.17 expected, revenue of $17.3B against roughly $16.82B — closed regular trading up 2.92% at $123.95, and then fell about 4.2% after hours to around $118.69. The reversal is attributed to the margin guide, not the quarter. A record year, a guided acceleration, and the stock went down on 65–66%.
Rule of 40
Cisco's Rule of 40 score for Q4 FY2026 is 46.54 — 17.58 of revenue growth plus 28.96 of free-cash-flow margin on $4,996M of quarterly free cash flow.
| Quarter | Revenue growth | FCF margin | Rule of 40 |
|---|---|---|---|
| FY2026 Q1 | 7.53 | 19.41 | 26.94 |
| FY2026 Q2 | 9.71 | 10.03 | 19.73 |
| FY2026 Q3 | 11.96 | 21.10 | 33.06 |
| FY2026 Q4 | 17.58 | 28.96 | 46.54 |
That is Cisco's best quarterly score since FY2023 Q4 (53.75), and the third consecutive quarter of improvement from a 19.73 trough. Both halves contributed, which is rarer than it sounds — the last time Cisco cleared 40 on this measure, in FY2023, it did so on a 37.7% cash margin and half the growth rate.
One caution on the cash half. The quarterly figure is flattered by fiscal-year-end seasonality: full-year operating cash flow was $14,177M, flat against $14,193M, while full-year capex rose 56% to $1,410M. On a fiscal-year basis, free cash flow was $12,767M against $13,288M — down. The record cash quarter sits inside a flat cash year.
The parts of the quarter that were not the business
Three lines flatter the GAAP comparison and should be read out of it before extrapolating the 51% EPS growth:
- Other income, net of $822M against $53M a year ago — a $769M swing, roughly 39% of the increase in pre-tax income.
- Restructuring and other charges of $511M against $35M, cutting the other way inside a record quarter.
- The GAAP tax rate rose to 21.8% from 15.0%, and Cisco has guided FY2027 to roughly 14.5% GAAP, which is a meaningful part of the guided GAAP EPS range of $4.00–4.06.
Non-GAAP EPS growth of 23% is the cleaner read on the quarter than GAAP's 52%.
What to watch next
Cisco reports fiscal Q1 2027 in early-to-mid November, guided to $18.0–18.2B of revenue and $1.32–1.34 of non-GAAP EPS.
The number to track is not revenue — the company has effectively pre-announced it. It is the gap between AI orders and AI revenue. $9.3B of cumulative orders against a $7.5B FY2027 revenue target means the backlog either converts or it visibly stops growing. And the non-GAAP gross margin guide of 65–66% is the price of that conversion, already stated.
Watch, too, whether services revenue does anything at all. A company guiding to 15% growth on a segment that grew 0.2% is guiding almost entirely on hardware.
An analyst asked management the question directly on the call — is this the peak of the cycle? Robbins pointed to the eighth consecutive quarter of double-digit networking growth and to three Silicon One P200 scale-across design wins, each with a different hyperscaler, with orders already booked in Q4. His framing:
"We believe the accelerating adoption of agentic AI is fueling a networking super cycle."
The test is simple enough to hold him to. If it is a super cycle, the 25% ex-hyperscaler order growth persists and gross margin stabilises somewhere near 65%. If it is a buildout, the orders arrive in a burst, the margin keeps sliding, and the FY2027 guide is the high-water mark. Q1 tells you which, in November.
What we learned
- The record quarter is not the story; the guide is. Fiscal 2027 revenue guidance implies +14.0% to +15.9% against fiscal 2026's $63,325M — a forty-year-old networking incumbent that just grew 11.8% has guided itself to accelerate.
- Product carried everything. Product revenue +23.6% to $13,459M against services +0.2% at $3,793M. Total revenue rose 17.6% on one of its two halves.
- Operating leverage was extreme in the quarter — gross profit +19.2%, operating income +38.1%, net income +51.3%, diluted EPS +51.6% to $0.97.
- Services flatlining is the risk under the guide. A business whose recurring half grows 0.2% has to keep selling hardware at 23% to hit the number.
- The acceleration is a claim, not yet a result. Nothing in this quarter demonstrates fiscal 2027; it establishes the base the guide is measured from.
