Cisco Systems (CSCO) tumbled more than 12% following its Q2 earnings report, despite the networking giant delivering a record $15.35B in revenue and year-over-year top-line growth of 10%. While the company exceeded Wall Street’s expectations on its headline numbers and raised its full-year guidance, investors reacted negatively to narrowing gross margins and the potential for continued profitability pressure.
With the sharp post-earnings selloff, analyst sentiment has become a battleground between those focused on a massive AI-driven infrastructure cycle and those wary of rising component costs.
What Do Seeking Alpha Analysts Say About Cisco’s Future?
Analyst expectations for Cisco are currently divided, reflecting a mix of optimism regarding the “AI-era” transition and skepticism over near-term margin headwinds.
Bulls pointed to the company’s massive inflection point in AI infrastructure, noting that orders from hyperscalers reached $2.1B in the second quarter alone. This figure matched the total AI orders for all of fiscal year 2025.
Optimists also highlighted the ongoing campus networking refresh cycle, driven by the end-of-support for legacy products and the rapid adoption of Wi-Fi 7. These analysts believe Cisco is “quietly winning” the AI buildout through its Silicon One architecture and optics portfolio, which are seeing triple-digit growth in specific segments like Acacia.
On the other side of the spectrum, skeptics highlighted the immediate pressure on profitability as non-GAAP gross margins fell 120 basis points to 67.5%. This decline was largely attributed to soaring memory costs and a shifting product mix, which management expects will continue to weigh on margins in the third quarter.
Additionally, some analysts expressed concern over the high valuation multiples relative to growth, pointing out that Cisco’s PEG ratio remains less attractive than faster-growing peers like Arista Networks (ANET).
There is also a shared concern regarding the acquisition of Splunk, as its transition to a cloud-based subscription model is currently creating a drag on revenue growth that may not abate until late in the 2026 fiscal year.
Here’s a breakdown of what some analysts had to say:
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Steven Fiorillo, Rating: Strong Buy: “Cisco just achieved record revenue, accelerating orders, and expanding operating leverage as Cisco is positioning the Silicon One and optics stack in addition to the security platform to monetize the next phase of AI buildout… the current valuation doesn’t make sense for a company that has more than 20% EPS growth on the horizon over the next 2 years.” – Cisco Systems: Quietly Winning The AI Buildout, But Nobody’s Pricing It In
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Justin Purohit, CPA, Rating: Hold: “While I view CSCO’s long-term role in AI infrastructure favorably, I believe better risk-adjusted opportunities exist elsewhere in the market today… gross margin fell 120 basis points in Q2 and is expected to decline further to 65.5%–66.5% in Q3, driven largely by soaring memory costs.” – Cisco Q2 Results: Narrowing Margins Overshadow Earnings Beat, Shares Fairly Valued
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Vladimir Dimitrov, CFA, Rating: Hold: “Cisco’s investors got a reality check that the company is not a pure growth stock, while it was certainly priced as one… In spite of the strong momentum in Networking, the prospects of margin pressures are overwhelming.” – Cisco Q2 Earnings: The Wrong Way To Get On The AI Bandwagon
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Gary Gambino, Rating: Hold: “Cisco is seeing increased orders from AI infrastructure demand as well as normal upgrade cycle timing. However, it looks like it will take until Fiscal Q4 2026 for this to really show up in revenue and EPS. This is due in part to memory supply headwinds and Splunk transitioning to a subscription model.” – Cisco Systems: The Market Is Impatient For Growth
What Do the Quant Ratings Say?
Cisco currently carries a Hold rating according to Seeking Alpha’s quant system. While the company scores exceptionally well in profitability, it faces significant headwinds in valuation and overall revenue growth compared to the broader technology sector.
Profitability: Cisco demonstrates world-class efficiency, receiving an A+ grade. The company’s net income margin of 19% is nearly quadruple the sector median of 5%, reflecting high operational performance even amid rising costs.
Valuation: The company earns a D+ grade for valuation, as it appears overstretched relative to peers. Its Price-to-Book ratio of 6.37 is significantly higher than the sector median of 3.55, though its 2.13% dividend yield remains a strong point for income-focused investors.
Growth: Growth metrics remain a concern, earning a D- grade. Forward revenue growth is projected at 6%, which trails the sector median of 10%, though the company’s 37% CAPEX growth indicates it is investing heavily in future infrastructure.
Momentum: Momentum receives a B grade, supported by a 1-year price performance of 20%. Despite the recent post-earnings dip, the stock has outperformed the broader sector’s 6% decline over the same period.
Earnings Revisions: The revisions category scores a B+, signaling optimism from the analyst community. Over the last 90 days, there have been 20 upward EPS revisions compared to only two downward adjustments, suggesting confidence in the company’s ability to exceed its conservative guidance.