Cisco Cuts 4,000 Jobs Despite Record Revenue as AI Demand Surges

What happened

Cisco delivered a standout third quarter with revenue reaching $15.84 billion, up 12% year-over-year and beating analyst expectations. Non-GAAP earnings per share came in at $1.06, while networking product orders surged over 50%. The real surprise came from AI infrastructure: Cisco has already booked $5.3 billion in AI-related orders this fiscal year and now expects that figure to reach roughly $9 billion by year-end, up sharply from the previous $5 billion target. The company also raised its AI revenue projection for fiscal 2026 to $4 billion from $3 billion. Following the May 13 earnings report, shares jumped as much as 17% in after-hours trading and hit a record high above $119 the next session—marking the stock's biggest one-day gain since 2011. Management raised full-year fiscal 2026 revenue guidance to between $62.8 billion and $63 billion, well above the prior range of $61.2 billion to $61.7 billion.

Why the stock moved

The stock surged following the better-than-expected results and the dramatic increase in AI infrastructure guidance. Investors had grown skeptical about Cisco's ability to capture value from the AI boom, but the $9 billion order forecast signaled that traditional networking vendors can win substantial business as hyperscalers build out AI capacity. The performance erased years of doubt about the company's positioning in AI infrastructure, with analysts noting that Cisco's Silicon One chips, advanced optics, and high-speed networking gear fill a critical gap in AI training and inference at scale. Morningstar raised its fair value estimate for Cisco to $90 from $75, citing the company's competitive moat in enterprise and data-center infrastructure. The guidance increase, combined with proof of execution in AI orders, reset investor expectations higher.

Bigger picture

Cisco's results highlight a broader pattern in AI adoption: infrastructure providers are now crossing the threshold from early investment to visible returns. Hyperscalers need far more than GPUs to run AI workloads—they require massive, low-latency networking fabrics to move data efficiently. Cisco spent years positioning its products for exactly this surge, and the order acceleration validates that long-term strategy. However, the company is simultaneously cutting fewer than 4,000 jobs in the fourth quarter as part of a restructuring that will cost up to $1 billion. CEO Chuck Robbins framed the moves as a deliberate reallocation toward AI, silicon, optics, and security priorities rather than a response to weak demand. The cuts represent about 5% of Cisco's workforce and reflect a broader tech industry trend: companies are redirecting resources toward AI even amid growth, as keeping pace with infrastructure advancements requires substantial capital. Robbins emphasized that the companies that win in the AI era will be those with the discipline to continuously shift investment toward areas with the strongest demand and long-term value creation.

What investors watch

Key metrics to monitor include whether Cisco can sustain the AI order momentum and execute on the projected $6 billion in AI hyperscale revenue for fiscal 2027. The company's ability to complete the restructuring without disrupting customer commitments will be critical, especially as competition in high-speed networking intensifies from both established players and startups. Any slowdown in hyperscaler capital expenditure could pressure near-term results, so tracking spending patterns from major cloud providers will be important. Investors should also watch execution across Cisco's broader portfolio—including optical networking growth, campus networking refreshes, and security offerings tied to the Splunk acquisition—to see if the diversified strategy can sustain momentum beyond the hyperscaler AI wave. The $450 million restructuring charge recognized in the current period will impact near-term profitability, so clarity on cost savings and reinvestment timelines will matter for earnings forecasts.

This article was generated by Quantli AI using publicly available news sources.