Cisco Tops Q3 Estimates, Boosts Outlook as AI and Splunk Fuel Growth

Cisco Systems delivered a robust third-quarter performance, exceeding Wall Street expectations and raising its full-year guidance as demand for AI infrastructure, networking, and security solutions accelerated. Revenue rose 11% year-over-year to $14.15 billion, while adjusted EPS came in at $0.96, ahead of the consensus estimate of $0.92. The company also lifted its fiscal 2025 revenue outlook to a range of $56.5 billion to $56.7 billion, up from a prior range of $56 billion to $56.5 billion. Shares rose over 3% in after-hours trading as investors reacted positively to the strong execution and improved outlook.

Cisco beat expectations across key metrics in Q3. The $14.15 billion in revenue edged past the $14.08 billion analyst consensus, while non-GAAP operating income reached $4.9 billion, exceeding the $4.74 billion estimate. Gross margin on an adjusted basis hit 68.6%, up 30 basis points from last year and above the top end of guidance. Non-GAAP operating margin reached 34.5%, while GAAP EPS rose 35% to $0.62. The company also declared a quarterly dividend of $0.41 and returned $3.1 billion to shareholders via buybacks and dividends during the quarter.

AI momentum was a central theme in the quarter. Cisco reported over $600 million in AI infrastructure orders from web-scale customers, bringing its year-to-date total to over $1.25 billion—hitting its annual target a full quarter early. CEO Chuck Robbins highlighted growing demand from enterprise clients for scalable, secure AI networking solutions, supported by partnerships with NVIDIA. Cisco's inclusion in NVIDIA's Spectrum-X reference architecture and its joint Secure AI Factory initiative are key examples of this collaboration. The company also noted emerging sovereign AI cloud opportunities and participation in large-scale infrastructure partnerships with global players like BlackRock, Microsoft, and Saudi Arabia's new HUMAIN AI initiative.

Cisco’s $27 billion acquisition of Splunk is beginning to show results, with the security unit posting 54% year-over-year revenue growth to $2.01 billion. While that fell short of some estimates, Splunk's integration drove Cisco’s largest-ever deal with a financial institution and contributed to record product orders, up 20% overall and 9% excluding Splunk. Notably, the company closed the acquisition of SnapAttack during the quarter, bolstering threat detection capabilities within Splunk. Cisco's security portfolio also gained traction with over 370 new customers adopting its Secure Access, XDR, and Hypershield offerings.

Data center and networking demand remained solid. Networking revenue rose 8% to $7.07 billion, aided by double-digit order growth in switching and enterprise routing. The company reported strong web-scale infrastructure orders and noted particular strength in WiFi 7 and ruggedized industrial IoT products. Cisco emphasized its leadership in campus switching and data center infrastructure, referencing a top placement in Gartner's Magic Quadrant. Government demand was a bright spot, with U.S. federal orders up double digits and FedRAMP authorization for Meraki cloud-managed networking.

On the macro front, Cisco acknowledged a murky environment but said it hasn’t seen any pullback in customer purchasing due to trade or tariff concerns. Still, guidance incorporates tariff-related headwinds, including expected 30% rates for China and 25% for Mexico and Canada. The flexibility of Cisco’s supply chain has helped it manage cost pressures effectively. Adjusted guidance for Q4 includes EPS of $0.96 to $0.98 on revenue of $14.5 billion to $14.7 billion, both slightly ahead of consensus.

The quarter also brought several executive updates. CFO Scott Herren announced plans to retire at the end of fiscal 2025. He will be succeeded by Mark Patterson, Cisco’s long-time Chief Strategy Officer. Jeetu Patel was promoted to President and Chief Product Officer, reflecting his leadership in accelerating Cisco’s innovation pipeline. Additionally, OpenAI’s Chief Product Officer Kevin Weil was appointed to the Board of Directors, underscoring Cisco’s increasing strategic alignment with the AI ecosystem.

In summary, Cisco's third quarter demonstrated strong execution, sustained AI-driven demand, and a growing security franchise fueled by Splunk. With product orders rebounding, macro resilience, and expanded partnerships across the AI landscape, Cisco appears increasingly well-positioned to capitalize on both infrastructure and enterprise digital transformation trends through the remainder of the fiscal year and beyond.