Earnings Call Insights: Cisco Systems, Inc. (CSCO) Q2 2026
Management View
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Charles Robbins, Chairman & CEO, stated that “Q2 was a very strong quarter with revenue and earnings per share both growing double digits and coming in above the high end of our guidance ranges.” He highlighted record revenue in Q2, with total revenue growth accelerating to 10% year-over-year and product revenue up 14%, driven by demand for AI infrastructure and Campus networking solutions. Robbins announced an increase to Cisco’s dividend and emphasized the company’s position as a critical infrastructure provider for the AI era.
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Robbins addressed market-wide memory price increases, stating, “Leveraging our industry-leading supply chain team, we are proactively implementing 3 key strategies: First, we have already announced price increases, and we’ll continue to monitor market trends and make additional adjustments as necessary. Second, we are revising contractual terms with channel partners and customers to address evolving component prices. Third, Cisco’s operating scale and industry-leading position help us negotiate favorable terms and secure supply to fulfill current and future demand.”
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Robbins noted, “AI infrastructure orders taken from hyperscalers totaled $2.1 billion in Q2 compared to $1.3 billion just last quarter and equal to the total orders taken in all of fiscal year ’25, marking another significant acceleration in growth across our silicon, systems and optics.” He also stated, “Given the strong demand for our Silicon One systems and optics, we now expect to take AI orders in excess of $5 billion and to recognize over $3 billion in AI infrastructure revenue from hyperscalers in FY ’26.”
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Mark Patterson, Executive VP & CFO, said, “We delivered another strong quarter with record revenue in Q2 and both operating margin and earnings per share coming in above the high end of our guidance. For the quarter, total revenue was $15.3 billion, up 10% year-over-year. Non-GAAP net income was $4.1 billion, up 10% and non-GAAP earnings per share was $1.04, up 11%.” Patterson added, “Given the confidence we have in our business and the strength of our ongoing cash flows, today, we announced that we are raising our dividend by $0.01 to $0.42 per quarter.”
Outlook
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Patterson provided fiscal Q3 guidance: “we expect revenue to be in the range of $15.4 billion to $15.6 billion. We anticipate non-GAAP gross margin to be in the range of 65.5% to 66.5%. Non-GAAP operating margin is expected to be in the range of 33.5% to 34.5%. Non-GAAP earnings per share is expected to range from $1.02 to $1.04.”
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For fiscal year 2026, Patterson stated, “we expect revenue to be in the range of $61.2 billion to $61.7 billion. Non-GAAP earnings per share is expected to range from $4.13 to $4.17.”
Financial Results
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Patterson reported, “Total product revenue was $11.6 billion, up 14% and services revenue was $3.7 billion, down 1% year-over-year. Networking was again the standout with growth of 21%, driven by AI infrastructure and campus refresh.”
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Security was down 4%, reflecting declines in prior generation products and the ongoing transition in the Splunk business from on-premise deals to cloud subscriptions. Collaboration posted solid growth of 6%.
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Total RPO was $43.4 billion, up 5%. Subscription revenue was $7.8 billion, representing 51% of total revenue. Total software revenue was $5.7 billion, up 2%. Non-GAAP gross margin came in at 67.5%. Operating cash flow was $1.8 billion, impacted by a $2.3 billion tax payment.
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Cisco returned $3 billion to shareholders during the quarter, including $1.6 billion in dividends and $1.4 billion in share repurchases.
Q&A
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Amit Daryanani, Evercore ISI: Asked about the AI side’s $5 billion target, the mix between Silicon One and Optics, and the impact of new products. Robbins responded, “the $5 billion that we now have raised our estimates to during fiscal 2026 does not include any of the recently announced P200 products, nor G300, also neither of the Optics solutions that we announced this week at Cisco Live EMEA. We talked about this past quarter, the mix was 60% systems, 40% optics.”
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Tal Liani, BofA Securities: Inquired about networking segment revenue growth and sequential guidance. Patterson said, “across networking, we’re seeing strength, frankly, across the entire portfolio from the Campus to the data center, to the manufacturing floor in terms of our IoT offerings as well.”
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Aaron Rakers, Wells Fargo: Asked about AI networking and scale up opportunities. Robbins stated, “we haven’t made any announcements on scale up. I think in the past, I’ve said we do plan to participate in it, and we expect in the future to have products and revenue from scale-up, but haven’t announced anything.”
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Meta Marshall, Morgan Stanley: Sought clarity on enterprise AI appetite and impact of pricing increases. Robbins explained early enterprise AI use cases and noted, “we really didn’t see anything in the quarter that would point us to evidence that there were any significant pull forwards there at all.”
Sentiment Analysis
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Analysts expressed cautious optimism, focusing on the sustainability of AI-driven growth, gross margin pressures, and execution on new product ramps. Their tone was neutral to slightly positive, seeking clarification on order trends and margin pressures.
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Management exhibited confidence, using phrases like “we feel confident in our ability to manage this industry-wide dynamic better than our peers” and “I have a high degree of confidence that we’re going to deliver our strongest fiscal year yet.” The tone in Q&A remained direct, occasionally reiterating earlier points but maintaining assurance on execution and demand.
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Compared to the previous quarter, analyst sentiment shifted slightly more positive, with greater focus on AI momentum and order acceleration, while management’s confidence was reinforced by higher guidance and product demand.
Quarter-over-Quarter Comparison
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Guidance for full-year revenue and EPS was raised from the prior quarter, with the AI order target moved from doubling prior year to “in excess of $5 billion.”
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Growth rates for product revenue and networking accelerated, reflecting stronger AI infrastructure demand and ongoing campus refresh.
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Management maintained a confident tone regarding execution, emphasizing stronger customer momentum and advancements in AI, while analysts shifted their focus to sustainability of AI-driven growth and margin resilience.
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Strategic priorities remained centered on AI infrastructure, with added emphasis on new product launches and international joint ventures.
Risks and Concerns
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Robbins addressed rising memory prices as a key industry-wide challenge, outlining proactive pricing and supply chain strategies.
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The transition in Splunk’s business model from on-premise to cloud subscriptions was cited as a drag on security revenue growth, although management expressed satisfaction with the long-term benefits.
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Analysts questioned the sustainability of gross margins and the lumpiness of large AI orders, particularly from a concentrated customer base.
Final Takeaway
Cisco management emphasized the company’s record-breaking quarter and strong position in the accelerating AI infrastructure market, citing robust demand, ongoing product innovation, and disciplined financial execution. The outlook for fiscal 2026 was raised, driven by heightened AI orders, expanded product adoption, and confidence in margin management despite cost headwinds. The company reaffirmed its focus on capital returns and strategic investments to capture the multiyear AI and networking refresh opportunity.