Has Cisco Stock Become A Different Bet?
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Cisco Systems (CSCO) stock trades at 31.9 times earnings, compared with 23.0 for the S&P 500. Shareholders paying that price need to know what they are buying, and the company’s priorities have changed. During its fiscal Q2 2025 call in February 2025, management said security orders had more than doubled again, driven by the Splunk business and by demand for its refreshed firewall. Management still credits Splunk for part of Security’s 14% revenue growth in the fourth quarter, but the company no longer presents Splunk as its growth story. So what does management talk up now?
Cisco Now Talks Up Networking And AI Demand
During the fiscal Q4 2026 call on August 12, 2026, management said Cisco is in a multiyear, multibillion-dollar networking super cycle fueled by the spread of AI. The company drew its main evidence from hyperscalers, the largest cloud companies, which placed $4 billion of AI infrastructure orders with Cisco in the fourth quarter alone. For the full fiscal year, those orders reached $9.3 billion, about 4.5 times the fiscal 2025 total.
Splunk mattered in fiscal 2025 because Security was the fastest-growing segment at the time. Security revenue rose 59.5% that year, helped by the addition of Splunk, while Networking revenue fell 3.2%. Since then, management has moved from a growth story in security to one in networking.
How Big Are Cisco’s Networking And Security Businesses?
Networking is now Cisco’s largest and fastest-growing business. It accounted for 54.7% of company revenue in fiscal 2026 following growth of 22.5%. Measured in dollars, Networking added $6.4 billion of revenue, while the entire company added $6.6 billion.
Security remains a sizable business at 13.0% of company revenue, but its revenue grew just 1.7% in fiscal 2026. AI sales to hyperscalers are growing fast from a small base. Management said AI infrastructure for hyperscalers was about 6% of total revenue in fiscal 2026, up from less than 2% in fiscal 2025.
Is Cisco’s New Focus Good For Shareholders?
So far, the shift looks reassuring. Over the twelve months to July 2026, Cisco’s revenue grew 11.8%, compared with 5.3% in the twelve months before. Its operating margin rose to 25.4% from 22.1%, so the faster growth came with more profit on each dollar of sales.
The concern is that Cisco’s growth now depends on networking demand, and management has flagged pressure on gross margin as that business grows. Management said adjusted product gross margin fell in the fourth quarter, mainly because of a higher hardware mix and memory costs. The company expects a slight gross margin headwind through fiscal 2027 as it pursues high-growth opportunities. It also warned that revenue growth faces much tougher year-earlier comparisons, mainly in the second half of fiscal 2027.
Cisco has become a networking bet, and so far that bet has delivered. When the company reports in November 2026, the numbers to watch are Security revenue growth and AI infrastructure revenue from hyperscalers. Management expects that AI revenue, which is counted separately from orders, to reach $7.5 billion in fiscal 2027, up from about $4 billion in fiscal 2026.
Does This Mean You Should Act On CSCO?
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