AI orders and a security turnaround put Cisco in play
- FY26 AI orders reached $9.3 billion, beating the $9 billion target, with a new FY27 AI revenue guide of $7.5 billion.
- Security revenue grew 14% in Q4 FY26, clearing doubts about the Splunk integration.
- Total Q4 product orders grew 35% year over year, showing broad demand beyond just cloud providers.
- Operating margins reached a 30-year high despite gross margin pressure from higher-volume AI hardware.
- Networking revenue accelerated to 28% year-over-year growth in Q4 FY26, driven by AI infrastructure and data center switching.
AI demand and security growth change the story
Cisco's Q4 FY26 results heavily reinforced the bull case. Management declared the start of a networking super cycle as the company hit $9.3 billion in FY26 AI orders, beating its own $9 billion target. It also set an aggressive FY27 AI revenue target of $7.5 billion, cementing its place as a key beneficiary of data center buildouts.
The good news extends beyond AI. Q4 FY26 total product orders grew 35%. Excluding hyperscaler orders, product orders still grew 25%, showing durable demand from core enterprise and service provider customers. Crucially, the Security segment returned to strong growth, jumping 14% and clearing a major bear argument.
The main pushback is profitability. The massive shift toward high-volume AI hardware acts as a persistent drag on gross margins. Cisco must execute perfectly on its operating expenses to protect its bottom line through FY27. The stock can work if AI revenue hits targets and the security turnaround holds, but margin pressure remains a real risk.
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 components like memory, which can pressure margins when costs rise.
What Cisco sells
Networking
This is Cisco's core business, including switching, routing, wireless, and AI infrastructure. Q4 FY26 Networking revenue grew 28%.
Security
This includes network security, identity and access management, and Splunk. Revenue grew 14% in Q4 FY26, showing the Splunk integration is yielding results.
Collaboration
This includes Webex, collaboration devices, and contact center tools. The segment saw double-digit order growth in Q4 FY26.
Observability
This helps customers see how apps and networks are performing, utilizing tools like ThousandEyes and Splunk Observability.
Services and support
Cisco provides technical support and advanced services over the life of its products. Services revenue was flat at $3.8 billion in Q4 FY26.
Where revenue comes from
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.
What could go wrong
Hardware mix pressures gross margins
High impact · High oddsThe massive mix shift toward high-volume AI hardware systems will act as a persistent gross margin headwind through FY27. Even with strong operating leverage, lower gross margins require flawless cost management to protect the bottom line.
Tougher comparisons ahead
Medium impact · Medium oddsThe second half of FY27 sets up difficult revenue growth comparisons against the massive FY26 results. If the networking super cycle slows, top-line growth could decelerate sharply.
Security growth may not last
Medium impact · Medium oddsSecurity reported 14% growth in Q4 FY26, but it is unclear how much of that was inflated by favorable Splunk contract durations or one-time deals. The organic security portfolio must prove it can grow sustainably.
Supply commitments create inventory risk
High impact · Medium oddsCisco relies heavily on contract manufacturers and has increased purchase commitments to meet hyperscaler demand. A sudden drop in orders could leave the company holding excess inventory.
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. The company took in $9.3 billion in AI infrastructure orders in fiscal 2026.
Why is Cisco's Security segment closely watched?
Security revenue grew 14% in Q4 FY26. Customers are shifting Splunk from large upfront deals to cloud subscriptions, which made reported revenue look weak in prior quarters before recovering recently.
What is the biggest number to watch next?
Watch AI revenue execution and gross margins. Cisco needs to hit its $7.5 billion AI revenue target for FY27 while proving it can manage the lower margins that come with high-volume hardware.
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.
Sources and research notes
This page combines Finn's company research with public filings and other cited materials. The thesis is reviewed when material company information changes; Finn Scores use the latest available scoring data.
- Thesis reviewed
- August 16, 2026
- Score data
- September 6, 2026
- Reviewed by
- Shivam Bharuka
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