Cisco Beats, Raises Guidance and Still Drops 6%: What the Market Is Pricing

Cisco (CSCO) did nearly everything right this week, and the stock still fell. Shares slid about 6% on Friday, a day after the networking giant reported its fastest growth in more than 15 years and raised its full-year outlook. They had jumped roughly 4% in after-hours trading on Thursday before the mood flipped.

Start with the print. According to Investing.com's earnings recap, first-quarter fiscal 2027 adjusted earnings came in at $1.40 per share against estimates of $1.32. Revenue rose 24% from a year earlier to $18.5 billion, ahead of the $18.11 billion analysts expected, with product revenue up 32%.

Profitability was just as strong. Cisco posted a record adjusted operating margin of 37.8%, so the growth is arriving with better profitability, not less. Management also trimmed headcount by a low single-digit percentage while sales climbed, a combination that pushes revenue per employee up roughly 19% on the updated full-year guidance.

The outlook was the real headline. For the second quarter, Cisco guided to adjusted EPS of $1.34 to $1.36 on revenue of $18.0 billion to $18.2 billion, with both midpoints above Wall Street's $1.23 and $17.91 billion. For the full fiscal year, it now sees EPS of $5.47 to $5.53 and revenue of $74.8 billion to $75.8 billion, versus consensus of about $5.15 and $73.2 billion.

The AI piece carried the most weight. Cisco raised its fiscal 2027 target for AI infrastructure revenue from hyperscalers to $9 billion, up from $7.5 billion and more than double last year's level. Networking product revenue grew 43%, with triple-digit growth in AI infrastructure, as CFO Mark Patterson laid out on the call, per The Motley Fool's earnings takeaways.

"In Q1, we delivered the strongest revenue and non-GAAP earnings per share growth rates for Cisco in over 15 years." — Chuck Robbins, Chair and CEO, Cisco

So why the selloff? The answer is orders. As CNBC's live market coverage noted, Barclays analyst Tim Long kept his equal-weight rating and a $109 price target, writing that hyperscaler AI orders "were likely down meaningfully Q/Q in FQ1 based on our estimates, but these orders tend to be lumpy."

Goldman Sachs analyst Michael Ng, who rates the stock neutral, flagged an "orders miss" in a Nov. 12 note. He also called the margin outlook better than expected and said Cisco showed strong operating leverage. In other words, the income statement was great and the order book left a question mark.

That's a classic setup. Cisco closed Thursday around $102, and a stock that already prices in a clean sweep has little room for a soft spot. Revenue is what Cisco has shipped. Orders are what it will ship next, and investors pay up for the second number.

There's a fair counterpoint. Lumpy is not the same as lost, and Cisco's own raised hyperscale target implies orders pick up through the year. Robbins also pointed to enterprises upgrading campus networks and security, calling it the early stage of a multiyear networking super cycle. Broad order growth across customer types is the healthier version of the story.

The risks are worth keeping in view. Ng warned that a growing hyperscale revenue mix may be a headwind to gross margin in the second half of fiscal 2027, and management says it is watching pricing and component costs. Cisco's AI target also leans on a handful of very large customers whose spending can swing quarter to quarter, at a time when AI spending worries have already rattled tech stocks.

For investors, the practical read is simple. Friday's drop looks like a reaction to order timing, not a break in demand. Shares near $96 sit about 12% below the Barclays target, though even the analysts quoted here stopped short of calling it a buy.

The cleaner signal comes next quarter. If Cisco's hyperscaler orders rebound and the $9 billion AI target stays on track, this dip will look like noise. If they stay soft, the market's caution will look earned.

Bottom line: Cisco delivered the numbers. Now it has to deliver the orders.