Cisco Systems (NASDAQ: CSCO) reported strong financial results for the second quarter of its fiscal year 2026, delivering a 10% year-on-year revenue increase to $15.3 billion, surpassing Wall Street’s consensus of $15.1 billion. The company’s product revenue rose 14% to $11.6 billion, while services revenue saw a slight decline of 1% to $3.7 billion. The results were bolstered by robust demand for AI infrastructure and campus networking solutions, despite facing near-term margin pressures due to elevated memory costs.
Non-GAAP operating income grew 9% to $5.3 billion, resulting in a non-GAAP operating margin of 34.6%. Cisco’s non-GAAP net income reached $4.1 billion, up 10%, translating to a non-GAAP earnings per share (EPS) of $1.04, which reflects an 11% increase compared to the same period last year. “With over 40 years of customer trust, global scale, and a relentless focus on innovation, we believe Cisco is uniquely positioned to deliver the trusted infrastructure needed to securely and confidently power the AI-era,” stated Chuck Robbins, Cisco’s chair and CEO.
The quarter’s performance underscored the increasing demand for AI-ready networking solutions and a significant refresh cycle in campus networking. Product orders accelerated across all regions and sectors, particularly with hyperscaler AI infrastructure, which saw orders rise sharply. Management has raised its full-year outlook for AI orders and introduced a series of commercial and supply chain strategies to mitigate ongoing cost pressures.
Hyperscaler AI infrastructure orders surged to $2.1 billion in Q2, up from $1.3 billion in the preceding quarter, matching the total recorded for the entire fiscal year 2025. Cisco now anticipates AI orders exceeding $5.0 billion and expects to recognize over $3.0 billion in AI infrastructure revenue from hyperscalers in FY 2026. The revenue mix in the latest quarter was approximately 60% systems and 40% optics. Notably, Cisco shipped its one-millionth Silicon One chip and launched the 102.4 Tbps G300, along with new 8000 and Nexus 9000 systems designed to cater to varied data center architectures.
Management also reported that AI orders from neo-cloud, sovereign, and enterprise customers amounted to $350 million, with a pipeline exceeding $2.5 billion. This includes a joint venture plan with AMD and HUMAIN aimed at establishing up to 1 GW of AI infrastructure by 2030. These developments position Cisco favorably to capitalize on multi-segment demand across systems, silicon, and optics.
However, the company is grappling with margin pressures stemming from rising memory costs. Cisco reported a non-GAAP gross margin of 67.5% for Q2, a decrease of 120 basis points year-on-year. The guidance for Q3 gross margin is projected between 65.5% and 66.5%, falling short of analyst expectations. To address these challenges, Cisco has implemented several initiatives, including price increases, adjustments to terms with partners and customers, and leveraging its scale for favorable supplier negotiations. Management noted a significant increase in advanced purchase commitments, amounting to $1.8 billion, with a substantial focus on securing memory supplies.
Total product orders grew 18% year-on-year, with networking orders exceeding 20% growth—marking the sixth consecutive quarter of double-digit growth. The company highlighted a multi-year, multi-billion-dollar campus refresh initiative, driven by next-gen switching, routing, and wireless platforms, alongside AI-native capabilities that enhance security and modernize operations. The industrial IoT sector, which has seen seven consecutive quarters of double-digit growth, is also benefiting from trends such as onshoring and the rise of AI workloads at the edge.
Management has provided guidance for Q3 FY 2026, projecting revenues between $15.4 billion and $15.6 billion, with non-GAAP gross margins set to range between 65.5% and 66.5%. Non-GAAP operating margins are anticipated to be between 33.5% and 34.5%, with EPS expected to be between $1.02 and $1.04. For the full fiscal year, Cisco expects revenues between $61.2 billion and $61.7 billion, with non-GAAP EPS ranging from $4.13 to $4.17. The company also announced a 2% increase in its dividend to $0.42 per share, reflecting confidence in its cash generation and commitment to returning at least half of free cash flow to shareholders.
As Cisco navigates near-term cost pressures, its strategies for pricing, contracting, and supply chain management are intended to stabilize margins amid growing demand for AI infrastructure and a robust campus refresh momentum. The company appears well-positioned to leverage visibility in hyperscaler and enterprise pipelines as it heads into the second half of FY 2026.
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