Cisco (CSCO) beats Q4 revenue, AI outlook but issues weaker profit guidance on chip shortages
Cisco Systems Inc. reported fourth-quarter earnings today, May 11, 2026, surpassing revenue expectations and its AI-driven outlook. Concurrently, the networking giant issued weaker-than-anticipated profitability guidance for the current quarter, attributing the revised outlook to memory-chip shortages and increased expenditure on artificial intelligence product development. The announcement follows an initial after-hours trading period where shares declined by approximately 4% to 6%.
Earnings and Outlook
The company's Q4 performance indicated robust demand, particularly within its AI-related segments, which contributed to the revenue beat. However, the forward-looking profitability forecast reflects ongoing supply chain pressures, specifically regarding memory components, and the substantial investment required to capitalise on the burgeoning AI market. This strategic spending, while positioning Cisco for future growth, is expected to compress margins in the short term. Cisco has scheduled its Q3 FY2026 earnings call for May 13, 2026, where executives are expected to provide further detail on these dynamics.
Market Reaction
Despite the cautious profitability guidance and an initial negative reaction in extended trading, Cisco's stock has advanced during today's session. Shares are currently trading at $97.99, marking a 1.5% increase from Friday's closing price of $96.57. The market's intraday assessment appears to be weighing the strong Q4 performance and AI growth prospects against the near-term profitability concerns.
Why the Market is Looking Past Short-Term Profitability for Cisco
Cisco is a global technology company that provides the essential infrastructure for the internet and enterprise networks. They design and sell networking hardware, software, and telecommunications equipment, including routers, switches, and cybersecurity solutions. Their customers are businesses, governments, and service providers worldwide, and they generate revenue by enabling these entities to connect, communicate, and operate securely.
Today's positive movement for Cisco, despite initial caution, stems from investors prioritising the company's robust AI-driven revenue growth over its immediate profitability outlook. While Cisco reported strong fourth-quarter earnings, exceeding revenue expectations, it also issued weaker-than-anticipated profitability guidance for the current quarter. This was attributed to ongoing memory-chip shortages and substantial investment in AI product development, which will compress short-term margins. However, the market appears to be focusing on the long-term potential of Cisco's AI segments.
This suggests that the market is willing to overlook a temporary dip in earnings for the promise of future growth. Consequently, Cisco's shares are currently trading at $97.99, marking a 1.5% increase from Friday's closing price of $96.57.
Think of it like a seasoned gardener planting a high-value, slow-growing tree. They know the initial investment of time and resources means fewer immediate flowers or fruits compared to annual plants. However, they are confident that the eventual yield and long-term value of the mature tree will far outweigh those short-term sacrifices.
Cisco
Cisco Systems, Inc. (CSCO) is a technology company specialising in Internet Protocol-based networking and communication products. Its extensive portfolio includes switching solutions for campus and data centres, alongside enterprise routing that secures and connects public and private networks. Cisco also provides wireless products for seamless voice, video, and data applications. The company's security offerings encompass network security, identity management, and threat intelligence. Furthermore, it delivers collaboration tools such as Webex Suite and contact centre solutions, available across cloud, on-premise, and hybrid environments. Observability services provide network assurance, monitoring, and analytics. Cisco serves diverse clients, from businesses and public institutions to governments and service providers, distributing its products directly and through various partners. Established in 1984, Cisco Systems, Inc. is headquartered in San Jose, California.