Networking technology giant Cisco (NASDAQ: CSCO) reported Q2 CY2026 results exceeding the market’s revenue expectations, with sales up 17.6% year on year to $17.25 billion. On top of that, next quarter’s revenue guidance ($18.1 billion at the midpoint) was surprisingly good and 8.1% above what analysts were expecting. Its non-GAAP profit of $1.22 per share was 4.4% above analysts’ consensus estimates.

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StockStory’s Take

Cisco’s latest quarter exceeded Wall Street’s revenue and adjusted profit expectations, but the market response was negative. Management attributed the strong sales to a surge in demand for AI-driven networking infrastructure, particularly from hyperscale cloud providers and enterprise customers, as well as robust product order momentum across geographies and segments. CEO Charles Robbins highlighted, “We delivered record revenue...with product revenue up 24% year-over-year,” citing broad-based demand and a multi-year networking upgrade cycle as key contributors. However, management also acknowledged that margin headwinds from higher hardware mix and memory costs impacted gross margins, despite overall operating efficiency gains.

Looking forward, Cisco’s guidance is underpinned by expectations for continued growth from AI infrastructure, expanding adoption of its Silicon One platform, and momentum in security and observability solutions. Management believes the company is in the early stages of a “networking super cycle” as organizations modernize for distributed AI workloads and prepare for emerging security threats, including quantum computing risks. CFO Mark Patterson noted, “We see acceleration in both top and bottom line growth,” while Robbins emphasized the unique opportunity in AI networking and the strategic role of Cisco’s vertically integrated stack in supporting customers’ evolving infrastructure needs.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to sustained AI infrastructure demand, broad-based growth in enterprise and public sector orders, and the compounding effects of new product launches and platform integration.

• AI infrastructure demand accelerated: Orders from hyperscale cloud customers for AI networking solutions grew sharply, with total AI-related orders reaching $4 billion in the quarter and $9.3 billion for the year. The mix was approximately 60% Silicon One-based systems and 40% optics, reflecting Cisco’s ability to serve distributed, high-bandwidth AI workloads across data centers.
• Networking portfolio strength: Q2 marked the eighth consecutive quarter of double-digit growth in networking, spanning service provider routing, data center and campus switching, wireless, and industrial IoT (internet of things) products. Management noted that more than half of customers are now purchasing both campus and data center networking solutions, reinforcing the value of Cisco’s integrated platform approach.
• Security and observability momentum: Cisco’s security portfolio, including Splunk, saw double-digit order growth, driven by increased adoption of unified security solutions and new AI-powered offerings like Secure Access, XDR, HyperShield, and AI Defense. Firewalls grew over 30%, and the company emphasized its ability to help customers address post-quantum cryptography risks.
• Platform and product innovation: The launch of Cisco Cloud Control—a unified management platform with AI Canvas and Cisco IQ—has attracted nearly 4,500 enterprise signups, streamlining network troubleshooting and highlighting the shift toward platform-based IT management. New tools for cybersecurity professionals, such as Antares, further expand Cisco’s AI-driven product pipeline.
• Order momentum across customer types: Product orders from service provider and cloud customers grew 95%, while enterprise and public sector orders accelerated to 21% and 30% growth, respectively. Telco orders also climbed over 30%, and industrial IoT demand continued its multi-quarter double-digit growth streak, reflecting broad-based technology investment.

Drivers of Future Performance

Cisco’s outlook reflects expectations for robust AI networking demand, ongoing campus and data center refresh cycles, and a strategic push into security and observability despite hardware margin pressures.

• AI networking cycle expansion: Management expects continued growth from AI infrastructure for hyperscalers, projecting $7.5 billion in AI infrastructure revenue next year. The company anticipates further design wins with cloud and enterprise customers, as demand grows for distributed, scalable, and secure networking solutions to support complex AI workloads across hybrid environments.
• Security and software growth: Cisco forecasts an acceleration in security and observability revenue, with security expected to shift from low single digit to high single digit growth as new AI-powered offerings and Splunk integration gain traction. Management views these segments as important contributors to future operating leverage and profitability.
• Margin and supply chain management: Hardware-driven growth is expected to pressure gross margins slightly, but operating margin is projected to reach a company high due to disciplined expense management and minimal incremental costs to capture AI-related opportunities. Management also highlighted confidence in supply chain resilience and the ability to fulfill rising demand, citing direct relationships with key suppliers like TSMC.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace of AI infrastructure adoption and new design wins across hyperscaler and enterprise customers, (2) the success of Cisco’s security and observability product integration—especially Splunk and new AI-powered offerings, and (3) the company’s ability to maintain operating margin discipline amid hardware-driven revenue growth. Execution on supply chain efficiency and continued customer platform adoption will also be critical signposts for sustainable growth.

Cisco currently trades at $118.87, down from $124.32 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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