Cisco Exceeds Q4 Expectations, But Valuation Concerns Dampen Investor Enthusiasm

Cisco exceeded Q4 expectations, posting a 7% YoY increase in total product orders and solid growth in all markets. However, the company's valuation appears stretched relative to its near-term growth prospects, leading to a muted market reaction. Cisco's AI-driven demand and networking products remain strong growth drivers, but investors should be cautious about the valuation.

Cisco Systems, Inc. (CSCO) reported strong fourth-quarter (Q4) and fiscal year (FY) 2025 results, exceeding expectations and demonstrating robust demand for its technologies. The company's total Q4 revenue reached $14.7 billion, up 8% year-over-year (YoY), while total FY 2025 revenue climbed to $56.7 billion, up 5% YoY [1].

Cisco's product orders grew by 7% YoY, driven by strong demand across all geographies. Notably, AI infrastructure orders from webscale customers exceeded $800 million, bringing the FY 2025 total to over $2 billion, more than double the original $1 billion target. The company's gross margins remained strong, with GAAP gross margin at 65.7% and non-GAAP gross margin at 68.4%, both at the high end of their guidance ranges [1].

The company's earnings per share (EPS) also performed well, with GAAP EPS of $0.71 and non-GAAP EPS of $0.99, both above the high end of their guidance ranges. GAAP EPS increased by 31% YoY, while non-GAAP EPS increased by 14% YoY. Cisco's operating income rose by 32% YoY, with a GAAP operating margin of 23.5% and non-GAAP operating margin of 34.3% [1].

However, despite the strong financial performance, Cisco's stock price has remained relatively flat following the earnings report. This muted market reaction can be attributed to concerns about the company's valuation relative to its near-term growth prospects. While Cisco's AI-driven demand and networking products remain strong growth drivers, investors are cautious about the potential for valuation compression [2].

Cisco's guidance for the first quarter of fiscal 2026 (Q1 FY 2026) and FY 2026 is in line with its strong performance in Q4 and FY 2025. The company estimates Q1 FY 2026 revenue of $14.65 billion to $14.85 billion and non-GAAP EPS of $0.97 to $0.99. For FY 2026, Cisco estimates revenue of $59.0 billion to $60.0 billion and non-GAAP EPS of $4.00 to $4.06 [1].

Investors should continue to monitor Cisco's progress as it navigates the AI infrastructure landscape and maintains its focus on strategic investments in innovation and shareholder value. The company's ability to capitalize on the growing demand for AI technologies and networking solutions will be key to its future success.

References:
[1] https://newsroom.cisco.com/c/r/newsroom/en/us/a/y2025/m08/cisco-reports-fourth-quarter-earnings.html
[2] Market reaction to Cisco's Q4 earnings report, as observed in various financial news outlets and market analysis platforms.