CSCO Stock Dips As CFO Flags Possible Margin Headwinds

• Plan to provide hardware equipment to AI hyperscalers to affect margins. 
• Comments from JPMorgan Chase & Co. technology conference. 
• The stock’s average 12-month price target is $122.87, implying a potential return of 6%.

Cisco (CSCO) share price dropped 2% on Tuesday after the networking hardware manufacturer’s management raised margin pressure risks going ahead as the company makes its way into AI infrastructure. 

The company’s move to supply hardware equipment to so-called hyperscalers — the largest data center operators — “comes at a different gross margin play,” Chief Financial Officer Mark Patterson said during a JPMorgan Chase & Co. technology conference.

“We’re growing hardware at about 30%, and software is in the single digits,” Patterson said. “So that’s going to continue, I think, to be a headwind. But at the same time, we’re doing a lot that’s sort of there to offset it.”

Despite the near-term margin headwinds discussed Tuesday, Cisco Chief Executive Officer Chuck Robbins recently emphasized that the company is aggressively transforming its operations to capitalize on surging demand in the AI market. 

“We’re very focused on profitable growth,” Patterson said during Tuesday’s conference. “And so longer term, if you have these sort of ups and downs in gross margin, just know that we’re very focused on operating margin. That’s a key path to the profitable growth that we ultimately want to show.” 

CSCO Q3 Earnings Highlights 

In its latest quarterly earnings report filed earlier this month, Cisco delivered record-breaking results that significantly outpaced Wall Street estimates.

Cisco reported a third-quarter fiscal revenue of $15.84 billion, representing a 12% increase year-over-year and beating the $15.56 billion consensus analyst projection. Adjusted earnings per share reached $1.06, ahead of the anticipated $1.04. The strong performance was primarily anchored by a 25% surge in networking segment revenue, which hit $8.82 billion, driven by explosive demand for artificial intelligence infrastructure.

Cisco revised its AI infrastructure orders guidance for FY2026 to approximately $9 billion, reflecting strong demand from hyperscalers. The company expects AI infrastructure revenue to reach $4 billion this fiscal year, with projections of at least $6 billion for FY2027.  

CSCO Retail View 

Retail Sentiment on Stocktwits was ‘extremely bullish’ with ‘extremely high’ message volumes. 

Message volumes have surged nearly 2000% over the past month. 

18 out of 27 analysts rate the stock ‘buy’, eight rate ‘hold,’ and one ‘sell’.

The stock has soared 87% over the past 12 months. 

For updates and corrections, email newsroom[at]stocktwits[dot]com