Cisco disappointed investors with its conservative forecast. They had expected greater returns from AI

Shares of the American technology company Cisco fell 7% in premarket trading on August 13 after the company released its revenue forecast for AI. Analysts deemed the forecast conservative and questioned how it compares to AI-related orders, which totaled $4 billion in the past quarter alone, according to Bloomberg.

Cisco expects sales related to the boom in data centers for artificial intelligence to reach $7.5 billion in fiscal year 2027 (which is currently in its first quarter). This has disappointed investors, who have watched as the world’s largest networking equipment provider secured $9.3 billion in orders in this sector over the past year, Bloomberg notes.

Sales in the AI sector will account for about 10% of Cisco’s projected total revenue, which is expected to range from $72.2 billion to $73.4 billion in fiscal year 2027. Wall Street had forecast $69.1 billion, according to Bloomberg. This is the first time the company has provided a full-year forecast for this segment, and analysts have questioned its accuracy given the massive volume of quarterly orders, the agency added.

"That strikes me as very, very conservative," said UBS analyst David Vogt.

Cisco is expected to post strong profits thanks to the global expansion of data centers that power AI systems. The company is restructuring in an effort to secure more contracts amid the AI boom, but it now faces stiffer competition from companies such as Broadcom and Hewlett Packard Enterprise.

Cisco CEO Chuck Robbins reported that for the entire 2026 fiscal year, the company generated approximately $4 billion in actual revenue from AI, while the total value of orders placed exceeded $9 billion. “These are non-recurring orders on a massive scale that are typically placed well in advance,” he said, calling the sales forecast for the coming year “a good and reasonable benchmark.”

In addition, Goldman Sachs analysts noted a decline in Cisco’s gross margin, according to MarketWatch. The company reported a gross margin of 66.3% for the fourth fiscal quarter, compared with 68.4% a year earlier. Furthermore, its forecast for the coming year (65–66%) fell short of the consensus estimate of 66.4%.

"Management expects to ship a significant volume of equipment due to the supercycle in networking technologies and Cisco’s strong competitive position, thanks to its supply chain. [But] the increase in the share of equipment is expected to put pressure on the gross margin,” Goldman Sachs noted (as quoted by MarketWatch).

A weak outlook for AI overshadowed strong fourth-quarter results. Cisco reported an 18% increase in revenue to $17.3 billion. This exceeded analysts’ estimates of $16.8 billion (according to FactSet).

“Cisco posted strong results, but the stock price had already factored in a great deal of optimism ahead of the earnings release. The market seems to view this more as confirmation of the current trend toward AI infrastructure development rather than as a new growth driver,” says Jake Behan, head of capital markets at Direxion (as quoted by Reuters).

Despite its focus on supplying AI data centers, the majority of Cisco’s revenue still comes from its traditional business. In May, the company announced a reorganization to focus more closely on the artificial intelligence market, and estimated that the resulting job cuts would lead to severance costs and other one-time expenses of up to $1 billion.

Over the past three months, Cisco's stock has risen by nearly 25% amid investor expectations that the company's focus on AI will lead to increased sales.

Goldman Sachs maintained its 12-month price target for Cisco shares at $125, which implies a 1.6% increase from the August 12 closing price, according to MarketWatch. Analysts at Evercore ISI also kept their previous price target at $150. This suggests a 21% upside potential for the stock. In its research note on Wednesday, Evercore ISI noted that the company is benefiting from the shift back to physical servers (rather than public clouds) and from customers’ willingness to pay more for specialized software again.

Citigroup analysts left their price target for Cisco shares unchanged at $139 (13% upside potential), noting that order growth rose by the same 35% year-over-year as in the previous quarter. They also pointed out that sales growth for networking equipment is expected to slow in fiscal year 2027.

According to MarketWatch, the current consensus forecast among analysts is “Overweight” (“better than the market”). Most experts (17) are positive, another 10 hold a moderate or neutral view, and no analyst recommends selling these assets.

This article was AI-translated and verified by a human editor