Financial Report Outlook | Cisco Systems, Inc. (CSCO.US) is about to deliver a crucial answer on "AI Transformation," with network business being the focal point.

Global networking giant Cisco Systems, Inc. (CSCO.US) will release its fourth quarter and full-year financial results for fiscal year 2026 after the market closes on August 12 (Wednesday). Driven by a strong wave of AI infrastructure development, this 40-year-old network powerhouse is undergoing the most profound restructuring of its growth logic since the dot-com bubbleorders for AI networks from hyperscale cloud service providers have been significantly upgraded from the previously expected $5 billion to about $9 billion, nearly doubling. Wall Street analysts expect Cisco Systems, Inc.s Q4 revenue to reach $16.85 billion, a year-on-year increase of 14.9%, and adjusted earnings per share of $1.17, up 18.2% year-on-year. From "selling switches" to "selling AI networks": a transformation that is coming to fruition In the past year, Cisco Systems, Inc.s stock price has risen over 64%, surpassing the S&P 500 indexs rise of 18.9% and the technology sector ETFs return of 39.3%. This increase reflects the market's revaluation of Cisco Systems, Inc.s AI narrative from skepticism to confirmation. In its Q3 financial report released on May 13, Cisco Systems, Inc. posted revenues of $15.84 billion (up 12% year-on-year) and adjusted earnings per share of $1.06, both exceeding market expectations. However, what truly caused the stock price to surge nearly 17% in after-hours trading was the companys aggressive upward revision of AI infrastructure orders. Cisco Systems, Inc. raised its expectation for AI infrastructure orders from hyperscale customers for fiscal year 2026 from $5 billion to about $9 billion, an increase of 80%. By the end of Q3, Cisco Systems, Inc. had secured a total of $5.3 billion in orders for AI infrastructure and hyperscale cloud providers. This surge in order size signifies that Cisco Systems, Inc.s competitiveness in the AI network market is transitioning from proof of concept to mass deployment. Cisco Systems, Inc. expects to recognize around $4 billion in AI infrastructure revenue for fiscal year 2026, with the full-year revenue guidance raised to between $62.8 billion and $63 billion. Q4 expectations: Networking business becomes the biggest highlight, AI order guidance may exceed expectations once again Market expectations for Cisco Systems, Inc.s Q4 are quite robust. Analysts predict that networking revenue will reach $9.7 billion, a year-on-year increase of 27.1%; total product revenue is expected to be $13.06 billion, up 20% year-on-year; and service revenue is projected at $3.79 billion. Expectations for various business segments: Product revenue: Expected to reach $13.06 billion, up 20% year-on-year; Networking business: Expected to reach $9.7 billion, up 27.1%AI-driven data center switching and routing is the main growth engine; Security business: Expected to be $2.04 billion, up 4.7% year-on-year; Observability business: Expected to be $277 million, up 6.9% year-on-year; Collaboration business: Expected to be $1.04 billion, up 0.3% year-on-year; Service revenue: Expected to be $3.79 billion, unchanged year-on-year. UBS Group AG forecasted in a report released on August 4 that Cisco Systems, Inc. will exceed expectations in both revenue and earnings for Q4, with networking revenue possibly surpassing their forecast of $9.6 billion, corresponding to a 26% year-on-year growth. UBS Group AG noted that industry research and feedback from hyperscale cloud service providers indicate that AI infrastructure demand has remained strong over the past three months, providing upward support for networking revenue and product orders. UBS Group AG expects Q4 product orders to grow by approximately 29% year-on-year and anticipates adjusted earnings per share to reach $1.19, above the market consensus of $1.17. Citigroup raised the target price for Cisco Systems, Inc. from $112 to $139 on August 6. The firm believes that Cisco Systems, Inc. will benefit from the expanding AI networking market, with Q4 revenue projected to grow 7% year-on-year to $14.6 billion, and earnings per share of $0.98 at the upper end of the company's guidance range. Fiscal Year 2027 Outlook: AI revenue aims for $6 billion, market anticipates surprises within conservative guidance As the upcoming fiscal year 2027 approaches, market attention has shifted from Q4 data to full-year guidance. Cisco Systems, Inc.'s management is known for providing conservative guidance, with gradual upward revisions throughout the year; the market generally expects this pattern to continue into the new fiscal year. UBS Group AG estimates that Cisco Systems, Inc. will provide revenue guidance of $68 billion to $69 billion for fiscal year 2027, driven by over $2 billion in incremental AI revenue, pushing total AI revenue above $6 billion. UBS Group AG also forecasts adjusted earnings per share guidance for fiscal year 2027 to be between $4.78 and $4.84, which is in line with market consensus. In the previous Q3 conference call, Cisco Systems, Inc. CFO Mark Patterson made it clear that achieving at least $6 billion in AI revenue from hyperscale customers for fiscal year 2027 is "reasonable." This implies that Cisco Systems, Inc.s AI revenue will increase by 50% from the $4 billion projected for fiscal year 2026. Morningstar released its latest research report on August 4, providing a more aggressive forecast: for fiscal year 2027, Cisco Systems, Inc.s AI revenue is expected to reach $8 billion, far exceeding the management's current guidance of $6 billion. Morningstar analysts believe that Cisco Systems, Inc.'s historical pattern of conservative guidance, followed by gradual annual revisions, indicates substantial upside potential for AI revenue. In terms of AI products, Cisco Systems, Inc. launched the Silicon One G300 switch chip, manufactured with a 3nm process, in February of this year, providing 102.4 Tbps switching performance specifically designed for AI clusters. The G300-driven N9000 and 8000 series systems are planned to start shipping in the second half of 2026. This product, which competes directly with Broadcom Inc.'s Tomahawk 6 series, is seen as a key component in establishing Cisco Systems, Inc.'s technological leadership in the field of AI networking chips. Security business: A "silent variable" more critical than AI While the narrative of AI dominates the headlines, a business segment that has been overlooked by the market is becoming a key variable in assessing Cisco Systems, Inc.s fundamental strength. Challenges facing the security business: Cisco Systems, Inc. acquired Splunk for approximately $28 billion in 2024, and its customers are shifting from early licensing deals to a more distributed cloud subscription model, which has continuously lowered current revenue. The decline of previous-generation security products is also offsetting growth from new product lines. Timeline for improvement: Cisco Systems, Inc. executives have provided an unusually specific timelineby the second quarter of fiscal year 2027, baseline comparisons will "normalize," and the core security business "is beginning to see some improvements." CEO Chuck Robbins stated in May that organic security business should "achieve close to double-digit revenue growth by the end of this fiscal year." The financial report on August 12 will be a crucial checkpoint for assessing this commitment. As TIKR analysts noted, "Reported revenues have not shown any growth, which is why an increase in this segment's data for Q4 will transform this story from management guidance into evidence." Risk warnings: Pressure on gross margins and tariff uncertainties Cisco Systems, Inc.s transformation towards AI is not without obstacles. UBS Group AG expects that rising component costs will limit gross margin expansion to around 66% for Q4. Citigroup warned in a report on August 7 that the potential for Cisco Systems, Inc.s stock price to rise may be limited, as Wall Street's expectations for campus equipment upgrade plans "seem somewhat overly optimistic." Tariff policies are another uncertain factor facing Cisco Systems, Inc. Patterson Companies Incorporated mentioned in the Q3 conference call that the performance guidance assumes current tariff policies will last until the end of 2026, and the company will continue to leverage its supply chain team to mitigate the impact of tariffs where appropriate. Additionally, Cisco Systems, Inc. announced in May that it would cut nearly 4,000 jobs (about 5% of its global workforce) as part of a restructuring plan to shift investments towards artificial intelligence and related growth areas. This restructuring, while interpreted as a positive signal by the market, also reflects the pressure traditional businesses are facing during the transition.