Cisco shares drop 9% despite exceeding Q4 earnings and Q1 revenue guidance

Cisco Stock Decline Amid Strong Results

Cisco's shares dropped 9% on Thursday, despite the networking equipment vendor reporting better-than-expected earnings for the fiscal fourth quarter and providing strong revenue guidance for the current quarter. The market reaction indicates investor concerns that were not alleviated by the positive financial figures.

Exceeding Financial Expectations

For the fiscal fourth quarter, Cisco's revenue increased by 18% to $17.3 billion, surpassing the analyst estimate of $16.8 billion. The company also projected revenue for the current quarter to be between $18 billion and $18.2 billion, exceeding the average estimate of $16.8 billion, according to LSEG data.

Analyst Concerns and Conservative Guidance

Analysts at Piper Sandler noted that while Cisco's quarterly numbers were strong, their guidance appeared conservative given the current demand environment. Some investors are beginning to question if the company is reaching a peak in its growth trajectory. Cisco CEO Chuck Robbins acknowledged the conservative approach, stating the company is being "a little bit prudent" as it starts a new fiscal year.

Impact of AI Boom and Hyperscaler Spending

Cisco's stock had risen over 60% for the year prior to the earnings report, driven by benefits from the artificial intelligence boom. Hyperscalers, major drivers of AI spending, placed $4 billion in infrastructure orders during the quarter, contributing to a total of $9.3 billion for the fiscal year. Cisco expects revenue from this group to nearly double to $7.5 billion by fiscal 2027 from $4 billion in the past fiscal year.

Future Outlook

While Cisco projects revenue growth of approximately 15% for the current fiscal year, analysts anticipate sales growth to dip into single digits in the next fiscal year. KeyBanc Capital Markets maintains a bullish stance, expecting Cisco to gain market share as hyperscalers and neoclouds increase their capital expenditures.