Cisco’s stock jumped 17% in after-hours trading following an impressive earnings report and an optimistic outlook driven by a significant increase in AI infrastructure orders, now projected at $9 billion for the fiscal year. Despite the positive financial news, the networking giant also announced plans to cut nearly 4,000 jobs as part of a strategic shift towards high-growth areas like AI.
Shares of networking behemoth Cisco Systems (CSCO) experienced a significant 17% leap in extended trading on Wednesday, fueled by the company’s latest financial results and an optimistic outlook that handily surpassed Wall Street’s projections.
This impressive market rally occurred even as Cisco revealed plans to reduce its global workforce by fewer than 4,000 positions this quarter, impacting less than 5% of its total employee count. The move is part of a strategic restructuring aimed at reallocating resources towards high-growth sectors, particularly artificial intelligence.
Cisco reported an adjusted earnings per share of $1.06, outperforming the LSEG consensus of $1.04. Revenue similarly exceeded expectations, reaching $15.84 billion against a forecast of $15.56 billion. This represents a robust 12% increase from $14.15 billion recorded in the prior year. Net income climbed to $3.37 billion, or 85 cents per share, up from $2.49 billion, or 62 cents per share, in the same period last year.
Looking forward, Cisco issued an encouraging forecast for the fiscal fourth quarter, predicting adjusted earnings per share between $1.16 and $1.18 on revenue ranging from $16.7 billion to $16.9 billion. These projections are notably higher than analysts' estimates, which stood at $1.07 in adjusted EPS and $15.82 billion in revenue.
A primary catalyst for the renewed investor enthusiasm is Cisco's substantial inroads into the artificial intelligence infrastructure market. The company has already secured $5.3 billion in AI infrastructure and hyperscaler orders this year, prompting a significant increase in its full fiscal year order forecast to $9 billion, up from a previous $5 billion. Concurrently, anticipated fiscal-year revenue from this burgeoning segment has been revised upwards to $4 billion from an earlier projection of $3 billion.
While Cisco has historically trailed some of its data center peers in the intense AI race, recent strategic shifts have convinced Wall Street of its potential. The stock recently hit a record high late last year, finally surpassing its dot-com bubble peak. Its shares have continued to climb this year, gaining 33% and outpacing the Nasdaq’s 14% advance.
If the after-hours gains are sustained through Thursday’s trading session, it would mark Cisco’s sharpest single-day rally since 2002.
CEO Chuck Robbins elaborated on the rationale behind the job reductions in a blog post on Wednesday, confirming that the latest round of cuts would commence on May 14. Cisco’s move aligns with a broader industry trend of companies streamlining operations and reallocating investments in response to the transformative impact of AI.
“The companies that will win in the AI era will be those with focus, urgency, and the discipline to continuously shift investment toward the areas where demand and long-term value creation is strongest,” Robbins asserted. “I’m confident Cisco will be one of those winners. This means making hard decisions — about where we invest, how we’re organized, and how our cost structure reflects the opportunity in front of us.”
Cisco anticipates pre-tax charges of approximately $1 billion related to severance and other associated costs, with around $450 million expected to be recognized in the fiscal fourth quarter.
During the third quarter, Cisco unveiled new switches and routers featuring its next-generation processor, designed to power and scale AI data centers effectively. The company also introduced a leaderboard to rank generative AI models based on their robustness against cybersecurity threats, underscoring its commitment to securing the evolving AI landscape.
The company’s networking revenue surged by 25% to $8.82 billion, comfortably exceeding StreetAccount's analyst consensus of $8.47 billion. Security revenue remained flat at approximately $2 billion, aligning with StreetAccount's $1.99 billion consensus.
Executives are scheduled to discuss these results further with analysts during a conference call commencing at 4:30 p.m. ET.
