Why Is Cisco Stock Sinking Even After Upbeat Q2 Results?

Shares are heading for their third straight session of decline as gross margin pressure is growing.

• Cisco reported a second-quarter adjusted total gross margin of 67.5%, compared with 68.7% from a year ago.
• The company noted that AI Infrastructure orders taken from hyperscalers totaled $2.1 billion.
• CEO Chuck Robbins said that due to strong demand for our Silicon One systems and optics, it now expects to take AI orders in excess of $5 billion.

Shares of Cisco Systems, Inc. tumbled nearly 8% after the bell on Wednesday, heading for a third straight session of losses, even as the company posted better-than-expected quarterly results and lifted its annual forecast on the back of strong demand for its AI-focused products.

Retail traders showed optimism in the company’s growth and the scaling of artificial intelligence as a bigger part of Cisco’s future. However, investors were concerned about gross margins that fell below Wall Street’s expectations, signaling a squeeze from rising memory chip prices.

Cisco reported second-quarter adjusted total gross margin of 67.5%, compared with 68.7% from a year ago. The company has already raised prices to offset higher costs and is now revising contractual terms with channel partners and customers to address rising component costs.

Cisco Q2 Earnings Snapshot

Cisco reported quarterly revenue of $15.35 billion, narrowly beating Wall Street’s estimate of $15.12 billion, according to data from Fiscal AI. The company posted adjusted earnings per share of $1.04, topping expectations of $1.02.

The company said that product orders were up 18% year over year, with networking product orders accelerating to more than 20% year over year. Cisco noted that AI Infrastructure orders taken from hyperscalers totaled $2.1 billion.

It now expects annual revenue of $61.2-$61.7 billion, up from the previous range of $60.2-$61 billion. Cisco forecast adjusted profit for 2026 to be between $4.13 and $4.17, up from the prior estimate of $4.08 to $4.14.

CSCO’s AI-Powered Growth

CEO Chuck Robbins said that due to strong demand for the company’s Silicon One systems and optics, it now expects to take AI orders in excess of $5 billion and to recognize over $3 billion in AI infrastructure revenue from hyperscalers in fiscal 2026.

Robbins added that Cisco sees strong demand for its industrial IoT portfolio, driven by the onshoring of manufacturing to the United States, the increase of AI workloads at the network edge, and the emergence of physical AI.

In the second-quarter, Cisco announced plans to form a joint venture with AMD and HUMAIN to deliver up to 1 gigawatt of AI infrastructure by 2030. “This joint venture expects to begin operations this calendar year, with a plan to build out 100 megawatts in Saudi Arabia as phase one of the project,” Robbins said during a post-earnings call.

What Is Retail Thinking?

Retail sentiment on Cisco improved to ‘extremely bullish’ from ‘bullish’ a week ago, with message volumes at ‘extremely high’ levels, according to data from Stocktwits.

A bullish user on Stocktwits said that the stock will load up tomorrow, and like Apple, it will also pick itself back up.

In the last 24 hours, retail message volumes on the stock increased a whopping 706% on Stocktwits.

Another bullish user on the platform expects the stock to hit $100. This implies a nearly 17% upside to the last closing price of $85.54.

Shares of Cisco have gained nearly 34% in the last 12 months.

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