Overview
Since the Report − 0.4%
Revenue grew 24.4% year over year, EPS beat the estimate by 5.3%; the stock fell 1.4% in its first reaction.
- RevenueQ1
- $18.52B
- ▲ 24% YoY · Beat Estimate by 2.1%
- EPSAdjusted
- $1.40
- Estimate $1.33 · Beat by 5.3%
Verdict
BUYCisco posted its fastest revenue and earnings growth in 15 years in the first quarter of fiscal 2027, with revenue up 24% to $18.52 billion. The raised full-year guidance lifted the stock nearly 8% in the first minutes, but after the earnings call it was down 1.4% after hours. The next thing to watch is how far the networking surge pulls down gross margin.
Close on Report DayNov 12
$102.01▼ 1.4%Report-Day Move
- Market Cap(Today)
- ≈ $400 B
- 1Y Return(At Report)
- + 38%
- P/E(At Today's Price · $4.72 · Trailing 12M)
- 21.5
- PEG(Company Guidance 2027)
- 0.80
- Net Margin(Trailing 12M)
- 21.0%
Earnings Summary
In 30 Seconds- Revenue grew 24% to $18.52 billion and beat expectations by 2.1%; adjusted EPS was 5.3% above the estimate.
- Full-year EPS guidance rose to $5.47-5.53, but adjusted gross margin narrowed 2.5 points in a year.
- The stock rose at first, but fell 1.4% after hours following the earnings call.
The Numbers
Adjusted Gross Margin
65.6%
Year Ago 68.1% · 2.5-Point Decline
Adjusted Operating Margin
37.8%
Record · Q4 35.9%
Full-Year EPS Guidance
$5.47–5.53
Estimate $5.15 · 6.8% Above
Stock Reaction
▼ 1.4%
After Hours ~6:20 P.m. ET · Not Settled
Quarterly Revenue ($ Billion)
14.88
Q1 26 · $14.9 B
15.35
Q2 26 · $15.3 B · QoQ + 3.1%
15.84
Q3 26 · $15.8 B · QoQ + 3.2%
17.25
Q4 26 · $17.3 B · QoQ + 8.9%
18.52
Q1 27 · $18.5 B · QoQ + 7.3% · YoY + 24.4%
18.0–18.2
Q2 27E · 18.0–18.2 · QoQ − 2.3% · YoY + 17.9%
- Q1 26
- Q2 26
- Q3 26
- Q4 26
- Q1 27
- Q2 27E
Q2 FY27 Company Guidance
- Revenue (Q2)18.0 – 18.2 billion18.0 billion18.2 billion18.0 – 18.2 billion
Midpoint 18.1 · Market Expectation 17.911.1% Above Estimate ▲
- Adjusted EPS (Q2)1.34 – 1.36 $1.34 $1.36 $1.34 – 1.36 $
Midpoint 1.35 · Market Expectation 1.239.8% Above Estimate ▲
- Adjusted Gross Margin (Q2)65% – 66%65%66%65% – 66%
Q1 Actual 65.6%Flat
- Full-Year Revenue74.8 – 75.8 billion74.8 billion75.8 billion74.8 – 75.8 billion
Prior 72.2–73.4 · Market Expectation 73.172.9% Above Estimate ▲
- Full-Year Adjusted EPS5.47 – 5.53 $5.47 $5.53 $5.47 – 5.53 $
Prior 5.05–5.11 · Market Expectation 5.156.8% Above Estimate ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±10% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Networking$11.1 BShare 60.1%▲ 43.0% YoY
- Services$3.85 BShare 20.8%▲ 1.0% YoY
- Security$2.12 BShare 11.4%▲ 7.0% YoY
- Collaboration$1.14 BShare 6.1%▲ 8.0% YoY
- Observability$279 MShare 1.5%▲ 2.0% YoY
Key Metrics
Remaining Performance Obligations
$46.2 B
▲ 8.0% YoYPress Release
Deferred Revenue
$30.1 B
▲ 7.0% YoYPress Release
Operating Cash Flow
$4.36 B
▲ 36.0% YoYPress Release
Cash Returned to Shareholders
$3.70 B
Press Release
Shares are computed over the segment total: $18.5 B. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We believe we are still early in the networking super cycle driven by AI deployments. We believe we are still very early in this refresh cycle.”
- Networking Super Cycle
- Campus Refresh Cycle
- 21% Product Order Growth
Summary and Review
Summary
Cisco reported first-quarter revenue of $18.52 billion. A year ago it was $14.88 billion, an increase of 24%. Revenue beat the $18.13 billion market expectation by 2.1%. Adjusted net income rose 39% to $5.57 billion. Adjusted EPS was $1.40, 5.3% above the $1.33 estimate. The company raised full-year EPS guidance to $5.47-5.53. The midpoint is 6.8% above expectations. All three gates are open: revenue, profit and guidance beat expectations.
The stock closed the regular session up 1.2% at $102.01. In the first minutes after the close, the gain neared 8%. After the earnings call the direction reversed. Around 6:20 p.m. ET the stock was down 1.4% at $100.62; the price has not settled yet. The market first read this report as an AI story. Cisco raised the AI infrastructure revenue it expects from hyperscalers this year from $7.5 billion to $9 billion. The gain faded during the call, where management discussed margins and supply.
Our score is 82 and our view is buy. All three gates are open, which maps to the 80-95 band. There is still one caveat. Adjusted gross margin fell to 65.6%, from 68.1% a year ago and 66.3% last quarter. The revenue mix is shifting toward lower-margin hardware, and services revenue grew only 1%. The 21% order growth disclosed on the call strengthens the basis for the guidance. This is a report card on the quarter, not a stock recommendation.
Full Review
Networking is the engine of revenue.
Networking revenue was $11.13 billion. Annual growth was 43%. This line now makes up 60% of total revenue. Product revenue as a whole grew 32% to $14.67 billion. Security grew 7%, collaboration 8% and observability 2%. Services revenue was nearly flat at $3.85 billion, up 1%. The earnings call also covered orders. Total product orders rose 21% year over year, on top of 13% a year earlier. Orders excluding hyperscalers grew 14%, and enterprise orders 15%. Networking product orders rose 28%. Orders from service provider and cloud customers climbed 47%. Demand does not depend on hyperscalers alone. But the source of revenue is concentrated in one product family.
Margin narrows, operating profit at a record.
Adjusted gross margin was 65.6%. A year ago it was 68.1%, a decline of 2.5 points. Last quarter it was 66.3%, a sequential decline of 0.7 points. Product gross margin was 63.7% and services gross margin 72.9%. The cause is mix: lower-margin networking hardware is growing its share. Even so, adjusted operating margin hit a record 37.8%. Last quarter it was 35.9%. The margin loss is not stopping profit growth. Revenue grew faster than expenses, and scale offset the gross margin loss. Adjusted operating income rose 37% to $7.01 billion. GAAP EPS rose 58% to $1.14. The company guides second-quarter gross margin to 65-66%. So the decline is not deepening, but it is not reversing either. On the earnings call, management said it sees no broad supply problems. It named optics as the biggest constraint.
Guidance moves up on both lines.
Second-quarter revenue guidance is $18.0-18.2 billion. The $18.1 billion midpoint is 1.1% above the $17.91 billion expectation. Adjusted EPS guidance is $1.34-1.36. The midpoint is 9.8% above the $1.23 estimate. Full-year revenue guidance rose from $72.2-73.4 billion to $74.8-75.8 billion. The new midpoint is 2.9% above the $73.17 billion expectation. Full-year EPS guidance rose from $5.05-5.11 to $5.47-5.53. That is an 8.3% upward revision at the midpoint. The higher guidance says the first quarter was not a one-off. The $7.5 billion AI revenue target on last quarter's list of expected developments has also risen to $9 billion. That item is no longer just a target; it is a raised commitment.
Strong cash, flat order book.
Operating cash flow rose 36% to $4.36 billion. The company returned $3.7 billion to shareholders in the quarter. Of that, $1.7 billion was dividends and $2.0 billion was share buybacks. The buybacks covered about 18 million shares at an average of $112.38. Remaining repurchase authorization is $6.1 billion. Remaining performance obligations were $46.2 billion, up 8% year over year. Last quarter the figure was $46.7 billion, so it fell 1% sequentially. Deferred revenue rose 7% to $30.1 billion. The cash flow increase shows profit growth is not just on paper. The company also declared a quarterly dividend of $0.42, payable January 20, 2027. Our guide explains which lines to read on earnings day.
Next quarter, watch gross margin.
Next quarter, look at a single line: adjusted gross margin. The company guides to 65-66%. If margin stays above 65%, networking growth is continuing without eroding profitability. If it falls below 65%, margin is paying the price for AI revenue. The second measure is services revenue. It grew only 1% this quarter. If it does not return to the 3-4% range, the revenue base becomes more dependent on the hardware cycle. The $9 billion full-year AI target sits behind both numbers. The third signal is remaining performance obligations. They fell 1% sequentially this quarter. A return above $46.7 billion would mean the order book is growing again. If the target rises while margin holds, the story gets stronger.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- Revenue rose 24% to $18.52 billion, the company's fastest growth in 15 years.
- Networking revenue grew 43% year over year to $11.13 billion.
- Adjusted operating margin set a record at 37.8%.
- Full-year EPS guidance was revised up 8.3% at the midpoint.
- Expected AI revenue from hyperscalers rose from $7.5 billion to $9 billion.
- According to the earnings call, total product orders rose 21% year over year and 14% excluding hyperscalers.
Risks
6- Adjusted gross margin fell 2.5 points in a year to 65.6%.
- Services revenue grew only 1%, and the recurring revenue base is slowing.
- Security revenue grew only 7%, a single-digit pace.
- Remaining performance obligations slipped sequentially from $46.7 billion to $46.2 billion.
- With 60% of revenue in one product family, any slowdown in the AI investment cycle would hit directly.
- On the earnings call, management named optics supply as the biggest constraint.
What to Watch
3- Q2 FY27 earnings will be reported in February 2027.
- The $0.42 quarterly dividend will be paid on January 20, 2027.
- Progress toward the $9 billion hyperscaler AI revenue target will be tracked through the year.
Upcoming Earnings
To Understand This