Buy Cisco as a New Leader of the AI Networking Infrastructure Space

Cisco Systems Inc. CSCO has been benefiting from strong product orders from hyperscalers, enterprises, service providers, the public sector and cloud customers. The company reported blowout third-quarter fiscal 2026 earnings results. CSCO generated record-high revenues primarily due to its networking portfolio, powered by Silicon One, AI-native security solutions and operating systems. Increasing AI workloads at the network edge and the emergence of physical AI are benefiting the industrial IoT portfolio. Consequently, the stock price jumped.Image Source: Zacks Investment ResearchCSCO Rides on AI Networking StrengthNetworking revenues were $8.82 million, up 25% year over year, highlighting accelerating demand for the company’s switching and routing portfolio. That strength aligned with management’s view that customers are modernizing networks to handle AI-driven traffic growth and campus refresh cycles. Cisco pointed to record campus networking orders growing more than 25% year over year and data center switching orders up more than 40%, supported by strong uptake in wireless and campus switching.Solid Demand From AI Hyperscalers In the last reported quarter, Cisco generated $1.9 billion in AI infrastructure orders, resulting in a total of $5.3 billion in orders year to date. This figure already exceeds management’s fiscal 2026 target. In the last quarter, five of the top hyperscalers each grew orders at triple-digit rates year over year.CSCO expects total AI infrastructure orders to reach $9 billion in fiscal 2026, an increase of 4.5X from fiscal 2025. Overall product orders grew by a sizable 35% year over year in the third quarter. Of this, data center switching orders grew 40% from the year-ago period, supported by massive AI-powered data center buildout. Cisco also highlighted a balanced mix between Silicon One-based networking systems and optics, alongside multiple hyperscaler design wins during the quarter. CSCO’s Acacia optics business, which makes the high-speed coherent pluggable optics for AI data centers, generated $1 billion in orders in the last reported quarter.Moreover, CSCO noted progress in refreshed security products and highlighted that over 1,000 new customers purchased products such as Secure Access, XDR, Hypershield and AI Defense in the third quarter.AI hyperscaler behemoths like Amazon.com Inc. AMZN, Microsoft Corp. MSFT, Meta Platforms Inc. META and Alphabet Inc. GOOGL are using CSCO’s AI-enabled networking infrastructure and switching equipment for their data centers. Targeted Reallocation of ResourcesCisco has decided to retrench 4,000 manpower as part of a sweeping restructuring effort. Management said that this restructuring has been guided to give more emphasis to areas like AI networking infrastructure, network security, silicon and optics. CSCO identified these four areas as its core business model in which management believes the company can maximize its long-term value. CEO Chuck Robbins said that the company is transforming itself from a legacy networking bigwig to a critical operator of the AI-powered networking infrastructure space. Strong GuidanceFor the fourth quarter of fiscal 2026, CSCO expects revenues of $16.7 billion to $16.9 billion and non-GAAP earnings of $1.16 to $1.18 per share. For fiscal 2026, management raised its outlook to revenues of $62.8 billion to $63.0 billion and non-GAAP earnings of $4.27 to $4.29 per share. Management also announced that the restructuring plan will cost up to $1 billion of pretax charges, including roughly $450 million in the fourth quarter of fiscal 2026, with the remainder in fiscal 2027.Impressive Estimate RevisionsFor fourth-quarter fiscal 2026 (ending July 2026), the Zacks Consensus Estimate currently shows revenues of $16.84 billion, suggesting an improvement of 14.8% year over year and earnings per share of $1.09, indicating an increase of 10.1% year over year. The Zacks Consensus Estimate for the current year has improved 0.9% in the last seven days.For 2027 (ending July 2027), the Zacks Consensus Estimate currently shows revenues of $65.77 billion, suggesting an improvement of 5.7% year over year and earnings per share of $4.52, indicating an increase of 8% year over year. The Zacks Consensus Estimate for next year has improved 0.7% in the last seven days.Image Source: Zacks Investment ResearchInvestment ThesisCisco Systems currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. CSCO offers an opportunity to invest in a company with substantial unrealized potential in the AI revolution. The astonishing growth potential of the global AI-powered data centers and management’s business visibility offer near-term potential. As a result, the average target price of brokerage firms is expected to witness solid near-term upside.Image Source: Zacks Investment Research7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks