Updated 3 - Cisco raises annual revenue forecast due to strong demand for AI-driven networking

Key points and analyst commentary have been added in paragraph 13

Anzar Mehraj

Reuters, November 12 - Cisco CSCO.O on Thursday reported quarterly results that beat Wall Street expectations and raised its annual revenue outlook. The networking equipment maker is betting on strong sustained demand as enterprises expand their artificial intelligence infrastructure.

As tech giants’ massive spending expands beyond AI processors to switches and routers needed to connect large data center systems, Cisco has further increased its AI efforts through strategic investments.

Cisco expects fiscal 2027 revenue to be between $74.8 billion and $75.8 billion, up from its previous forecast of $72.2 billion to $73.4 billion.

“We are in the early stages of a multi-year networking super cycle,” CEO Chuck Robbins said in a statement.

The company has raised its revenue forecast from AI infrastructure for hyperscale businesses in fiscal 2027 from $7.5 billion to $9.0 billion. The business segment generated $4.0 billion in revenue a year ago.

With the Democratic Party achieving a sweeping victory in the U.S. midterm elections, along with rising borrowing costs and their impact on debt-driven construction projects, investors have been concerned that data center construction could slow down.

According to data compiled by LSEG, Cisco reported first-quarter revenue of $18.5 billion, higher than the analyst average expectation of $18.14 billion.

The company reported adjusted earnings per share of $1.40 for the quarter ended October 24, beating the $1.33 expected.

Cisco is also developing software tools that enterprises can use to build their own “robot armies” (AI agents), to protect their IT infrastructure from cybersecurity threats.

The company, headquartered in San Jose, California, saw its shares stay flat in volatile after-hours trading. As of Thursday’s close, its stock has risen about 32% so far this year.

Cisco’s gross margin has long been a focus for investors, as memory chip shortages have raised component costs for hardware manufacturers while suppliers prioritize chip deliveries to AI data center customers.

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“Given the rising costs of memory and components, the slight dip in gross margin is not a major concern,” said TECHnalysis Research President and Chief Analyst Bob O’Donnell.

He added that, as a company closely tied to AI infrastructure, Cisco’s increased annual performance outlook and better-than-expected results are exactly what the market is looking for.

The company reported that first-quarter adjusted gross margin was 65.6%, in line with expectations but down from 68.1% a year earlier.

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