Cisco Systems
The company that builds most office and campus networks, now also selling the switches and chips that connect AI data centres.
The scores
Growth3/4 ↑
12% for FY26 and about 15% guided for FY27, organic, but about 5 points is price and recurring revenue grew only 3%.
Business quality3/4 →
Largest in switching and routing by outside count and gaining campus share while raising prices, but third and falling in data-centre switching.
Financial position3/4 →
About $13.6B of net debt against $12.77B of free cash flow and an undrawn $5B line; serviceable, not a fortress.
Execution record3/4 ↑
Eight straight beats and a raised year, but revenue fell 5.6% in FY24 and the margin guide disappointed twice this year.
Per share capture3/4 ↓
Diluted shares fell 5.9% in five years, but stock pay reached 6.0% of revenue and FY26's count barely moved.
Potential2/4 →
A $15.4B-a-quarter switch market growing 39.8% and $46.73B under contract, but the campus half grows on price and a refresh that ends.
Risk profile3/4 →
Buyers span enterprise, government and providers, but margins sit on memory prices and hyperscaler AI orders are lumpy.
Valuation2/4 ↓
23.1 times next year's adjusted EPS pays for FY27's 15% and 7% a year after it, about the good case, not the base.
Evidence quality3/4 →
Revenue, segments and debt are filed and share is measured outside, but orders, AI revenue and recurring revenue are management's.
The Verdict
We rate Cisco Neutral. It is a solid business: the largest seller of network switches and routers, growing again and raising prices without losing customers. The price is full. At about 23 times next year's expected profit, buyers are paying as if today's upswing keeps going. Part of that upswing is a cycle, with customers replacing old equipment at prices lifted by a memory shortage, and cycles end. The view hinges on whether orders keep growing once those price rises stop adding to them next year.
The long caseAI forces every network to be rebuilt and Cisco owns the installed base; it must keep growing once price rises and the refresh fade.
The evidence under this - 6 claims
- Arista, Extreme and HPE cost more for each dollar of trailing earnings (pack cohort), so against its filed rivals Cisco is the cheapest on earnings.
- Adjusted EPS is growing 17% in the FY27 guide (C06), faster than revenue.
Networking orders have grown double digits for eight quarters (C04), Dell'Oro expects faster ports to keep the refresh going to 2029 (C13), and security flaws found by AI may make replacement less optional than past cycles (C24).
AI optics sold to telecom carriers and neoclouds may sit outside the hyperscaler figure, so the non-AI rate could be lower still; equally, Wi-Fi 7 and campus orders up 20% (C04) say unit demand is real.
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
The company
Every office, campus and hospital needs a network: the switches and routers that move data between computers, and the wireless points that reach phones and laptops. Cisco sells that equipment, plus security software, the Splunk monitoring tools and Webex, mostly through resellers.
It is now also selling to the cloud giants building AI data centres, using its own Silicon One chips and optics. Those buyers ordered $9.3B of AI gear in FY26. The alternative for any buyer is a rival's box, or one designed in-house.
The evidence under this - 3 claims
- The 10-K warns that hyperscalers 'may change their orders or buying patterns with us with limited advance notice', and Cisco has prepaid suppliers against these orders (C14).
- IDC ranks NVIDIA first in data-centre Ethernet switching after revenue up 192.7% in a year (C27): the AI build-out is being won mostly by others.
Dell'Oro says memory shortages are causing campus switch availability problems across the market into 2027 (C12).
How it makes money
Most of the money is hardware: products brought in $48.30B of FY26's $63.33B, and networking alone was 55% of revenue. Services, mainly support contracts, added $15.03B and did not grow.
What keeps it coming is the installed base. Customers who run Cisco networks tend to buy the replacement from Cisco, and $46.73B of revenue is already under contract but not yet booked.
The evidence under this - 4 claims
Recurring revenue growing 3% against 18% total growth means the surge is hardware sold once, not subscriptions.
Where the money comes from, stream by stream
| Stream | Share of sales (FY 2026) | How it earns it |
|---|---|---|
| Networking | 55% | Switches, routers, Wi-Fi, servers, optics and Silicon One systems sold to enterprises, carriers and cloud companies, mostly recognised when shipped. |
| Services | 24% | Technical support and maintenance contracts and professional services, recognised over the contract. |
| Security | 13% | Firewalls, secure access, identity and Splunk security software, sold as hardware, licences and subscriptions. |
| Collaboration | 7% | Webex meetings, calling, contact centre and video devices. |
| Observability | 2% | Splunk observability, AppDynamics and ThousandEyes software that monitors networks and applications. |
Who runs it
Chuck Robbins has run Cisco since 2015. The finance chief, Mark Patterson, took over in 2025 after 25 years at the company, and Jeetu Patel became president the same year. Directors and officers own under 1% of the shares, and insiders sold rather than bought over the past year, nearly all under plans set in advance. Bonuses pay on revenue and operating income, so they reward growth and profit, not the share price. Management is also cutting costs to fund silicon, optics, security and AI.
The evidence under this - 3 claims
Why it wins, and who could beat it
Why customers come back
Network teams know Cisco's software, and replacing it means retraining people and rebuilding years of settings. An outside count by IDC puts Cisco at 29.3% of switch sales and 35.1% of routers, the largest in both, and its main rival's own annual report calls the market historically dominated by Cisco.
The proof came this year: campus switch prices rose 19%, and Cisco still gained share. Old equipment that can no longer be patched is a real risk, since an average US data breach cost $10.22M in 2025.
The evidence under this - 5 claims
The threat
In AI data centres the leader is no longer Cisco. NVIDIA sells its networking together with the chips that run AI and became the largest seller of data-centre switches in early 2026, ahead of Arista. Cisco's own growth there trails the market, so its share is likely falling.
The evidence under this - 3 claims
The rivals: NVDA, ANET, CLS, HPE, EXTR, CIEN, FTNT, PANW, ZM.
Who else does this, rival by rival
| Ticker | Rival | How far along | Priced against it |
|---|---|---|---|
| NVDA | NVIDIA Spectrum-XPriced against it: Shown, not counted | On sale | Shown, not counted |
| ANET | Arista NetworksPriced against it: Yes | On sale | Yes |
| CLS | White-box switches from Celestica running the buyer's own softwarePriced against it: One segment only | On sale | One segment only |
| HPE | HPE (Aruba and Juniper)Priced against it: Yes | On sale | Yes |
| EXTR | Extreme NetworksPriced against it: Yes | On sale | Yes |
| CIEN | CienaPriced against it: One segment only | On sale | One segment only |
| FTNT | FortinetPriced against it: One segment only | On sale | One segment only |
| PANW | Palo Alto NetworksPriced against it: One segment only | On sale | One segment only |
| ZM | Zoom CommunicationsPriced against it: One segment only | On sale | One segment only |
How big it could get
How big this could get
IDC counted $15.4B of switch spending worldwide in the first quarter of 2026, up 39.8%, and $3.8B on routers. Most of the growth is in data centres, where spending rose 61%. The campus half, Cisco's home ground, grew 12.3%, and much of that was higher prices rather than more equipment.
The evidence under this - 3 claims
Who has signed
Cloud giants placed $9.3B of AI orders in FY26, and three of them have chosen Cisco's newest chip for links between data centres. But orders can be changed with little notice, and the contracted figure that is filed grew only 7%.
The evidence under this - 3 claims
- The 10-K warns that hyperscalers 'may change their orders or buying patterns with us with limited advance notice', and Cisco has prepaid suppliers against these orders (C14).
- IDC ranks NVIDIA first in data-centre Ethernet switching after revenue up 192.7% in a year (C27): the AI build-out is being won mostly by others.
Dell'Oro says memory shortages are causing campus switch availability problems across the market into 2027 (C12).
Where the growth is coming from, business by business
Where the growth is coming from
| Business | Share of revenue | Growth: last quarter | Last half-year | Last year | Share in 3 years at its half-year rate |
|---|---|---|---|---|---|
| Networking | 57% | +28.3% | +26.6% | +22.5% | 71% |
| Services | 22% | +0.2% | -0.6% | -0.1% | 13% |
| Rest of the company | 21% | +12.8% | +6.3% | +2.4% | 16% |
| Whole company | 100% | +17.6% | +14.8% | +11.8% | 100% |
On the filed split through 2026-07-25, if each business keeps its last half-year's growth, the company grows about 16% next year and 19% in year 3, against 11.8% over the last twelve months. Networking grows fastest: it grows 27% against 3% for the rest, and would be 71% of revenue by then. A scenario, not a forecast: no business holds its rate.
How we read it: Networking carries it; the score believes the blend, because networking's own pace includes price and a refresh that ends.
The results
The numbers
Sales grew 12% in the year to Jul 2026, faster than the 5.3% in the year before.
Operating margin is 24%, down from 26% in the year to Jul 2023.
Running costs take 40¢ of each sales dollar, up from 35¢ in the year to Jul 2022.
Each dollar put into the business earns 16% a year after tax, down from 22% in the year to Jul 2022.
It turned 20% of sales into free cash, $12.8B over the year.
It owes $15.2B more than the cash it holds, about 1.1 years of the cash its operations bring in.
The share count fell 4.9% in 4.0 years, and pay in shares costs 6.0% of sales.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-07. Fiscal years end in July.
| Jul 2022 | Jul 2023 | Jul 2024 | Jul 2025 | Jul 2026 | |
|---|---|---|---|---|---|
| Size and growth | |||||
| Sales | $51.6B | $57.0B | $53.8B | $56.7B | $63.3B |
| Sales growth | +3.5% | +11% | −5.6% | +5.3% | +12% |
| Profit | |||||
| Gross margin | 63% | 63% | 65% | 65% | 65% |
| Operating margin | 27% | 26% | 23% | 21% | 24% |
| Net margin | 23% | 22% | 19% | 18% | 21% |
| What growth costs, per sales dollar | |||||
| Research and development | 13% | 13% | 15% | 16% | 15% |
| Sales and marketing | 18% | 17% | 19% | 19% | 18% |
| General and admin | 4.1% | 4.3% | 5.2% | 5.3% | 4.4% |
| Pay in shares | 3.7% | 4.1% | 5.7% | 6.4% | 6.0% |
| Capital spending | 0.9% | 1.5% | 1.2% | 1.6% | 2.2% |
| Cash | |||||
| Cash from operations | $13.2B | $19.9B | $10.9B | $14.2B | $14.2B |
| Free cash flow | $12.7B | $19.0B | $10.2B | $13.3B | $12.8B |
| Balance sheet | |||||
| Cash and short-term investments | $19.3B | $26.1B | $17.9B | $14.5B | $14.3B |
| Debt | $9.52B | $8.39B | $31.0B | $28.1B | $29.5B |
| Net cash | $9.75B | $17.8B | −$13.1B | −$13.5B | −$15.2B |
| Returns and shares | |||||
| Return on capital | 22% | 24% | 16% | 14% | 16% |
| Shares (diluted) | 4.19B | 4.11B | 4.06B | 4.00B | 3.99B |
What growth costs
Growth has been getting cheaper. Revenue rose 12% in FY26 while research, selling and administration costs rose much less, so the official operating margin climbed from 20.8% to 24.3%. Part of that came from price rises spread over fixed costs, and it would reverse if prices fall.
The evidence under this - 3 claims
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
The last report (12 Aug)
Quarter ended July 2026, filed figures.
In Q4 FY26 revenue grew 18% to $17.25B, the fastest in years, and orders rose 35%. Management then guided FY27 to about 15% growth.
Two details tempered it. The share of each sale Cisco keeps as gross profit fell to 66.3% from 68.4%, because memory chips cost more. And about 5 points of the quarter's growth came from raising prices, which management expects to add 4 to 5 points this year, mostly in the first half.
What it did to the thesisIt proved the upswing is real and broad, beyond the AI orders. It also showed how much of it is price, and that profit on each sale is shrinking, which leaves open how strong demand looks once the price rises stop.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $1.22 against $1.17 expected.
The evidence under this - 4 claims
- Orders are not audited and Cisco publishes no backlog; product RPO, the filed measure nearest to it, rose only 9% (C32).
- About 5 points of Q4 revenue growth was price increases (C07), so order growth in dollars overstates growth in units.
- The guide carries 4 to 5 points of price increases (C07), which management says it will lap in the second half of FY27.
- Its own long-term model, cited by an analyst on the call, is 4% to 6% growth.
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
What management did with the money
Cisco hands back nearly all the cash it makes. In FY26 it paid $6.55B of dividends and spent $6.11B buying back shares. It also still carries the debt it took on to buy Splunk in FY24.
Insiders in 2026Q3: 10 purchases and 32 sales, from their Form 4 filings.
The evidence under this - 3 claims
The price, and where we disagree
In short. Full. The price pays for the guided year and steady growth after it, which is the good case for a business whose growth is partly a cycle.
The shares have risen 73.6% in a year but sit 9.5% below their high after two falls on results, both when management warned the gross margin would shrink. The next results, due 12 November, are the first test of the FY27 plan. The refresh driving campus demand is expected to run for years, so the question is how much of it is already in the price.
The evidence under this - 4 claims
- The guide carries 4 to 5 points of price increases (C07), which management says it will lap in the second half of FY27.
- Its own long-term model, cited by an analyst on the call, is 4% to 6% growth.
How we read the multiple
Buyers pay about 23 times what analysts expect Cisco to earn in FY27 on its adjusted measure. That pays for:
1. FY27 growth of about 15%, as guided. 2. About 7% a year after that, which is what analysts forecast. 3. The memory-driven price rises and the refresh fading by then without a slump.
That last step is the risk. The last time demand surged, revenue fell 5.6% the year after.
Against its own history. It costs more than buyers paid for years, and the extra is mostly a bet that this growth lasts rather than a bigger business.
The evidence under this - 4 claims
- Arista, Extreme and HPE cost more for each dollar of trailing earnings (pack cohort), so against its filed rivals Cisco is the cheapest on earnings.
- Adjusted EPS is growing 17% in the FY27 guide (C06), faster than revenue.
Networking orders have grown double digits for eight quarters (C04), Dell'Oro expects faster ports to keep the refresh going to 2029 (C13), and security flaws found by AI may make replacement less optional than past cycles (C24).
Priced against its rivals
The competitors its own annual report names, each confirmed against the rival's filing. Measured on price for each $1 of yearly profit, cheapest first:
| Ticker | Company | price for each $1 of yearly profit |
|---|---|---|
| CSCO | Cisco Systems | 34.9× |
| HPE | Hewlett Packard Enterprise Company | 36.3× |
| ANET | Arista Networks | 66.0× |
| EXTR | Extreme Networks | 76.4× |
| NVDA | NVIDIA not in the median | 29.8× |
The middle of the other 3 is 66.0. NVIDIA Corporation competes with it in one product line inside a much bigger company, so its price says little about this business and it is not counted in the middle. Cisco Systems, Inc. is cheapest of 4.
Rivals' figures come from a data provider, so read the spread of the group rather than any single pair.
Cheaper than its rivals on official earnings, but theirs are held down by buying other companies, so the gap says little about Cisco.
Private or foreign rivals that cannot be priced: Huawei Technologies Co., Ltd., Nokia Corporation.
Where we disagree with the market
Cisco is now an AI networking winner at the start of a long upswing, so it deserves a higher price than the slow-growth company it was.
The upswing is real, but part of it is price and a refresh that ends, so steady growth after next year is the good case, not the base.
The market sees the orders and the AI line and reads them as a lasting change. We read the same report and see recurring revenue up only 3%, growth outside AI at about 12% of which price is a large part, and a margin already falling.
The case against us is strong: orders rose for eight quarters in a row, and the cloud giants doubled their AI orders. If demand holds after the price rises stop, the market is right.
What analysts say, and the evidence
The evidence under this - 6 claims
- Orders are not audited and Cisco publishes no backlog; product RPO, the filed measure nearest to it, rose only 9% (C32).
- About 5 points of Q4 revenue growth was price increases (C07), so order growth in dollars overstates growth in units.
- The 10-K warns that hyperscalers 'may change their orders or buying patterns with us with limited advance notice', and Cisco has prepaid suppliers against these orders (C14).
- IDC ranks NVIDIA first in data-centre Ethernet switching after revenue up 192.7% in a year (C27): the AI build-out is being won mostly by others.
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
AI optics sold to telecom carriers and neoclouds may sit outside the hyperscaler figure, so the non-AI rate could be lower still; equally, Wi-Fi 7 and campus orders up 20% (C04) say unit demand is real.
Recurring revenue growing 3% against 18% total growth means the surge is hardware sold once, not subscriptions.
What could go wrong, and how we would know
The risks
- Losing the AI data centre. NVIDIA now sells more data-centre switches than anyone, by selling them with its chips.
- Price rises that unwind. About 5 points of growth is higher prices, which outside trackers expect to normalise once memory supply eases.
- Margins under memory costs. The gross margin is falling, and Cisco has committed to buy more parts at today's prices.
- The cycle turning. After the last surge, revenue fell 5.6% in FY24 as customers used up what they had bought.
- Orders that can vanish. Cloud giants' AI orders can change with little notice, and none of them is filed as a firm contract.
The evidence under this - 6 claims
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
- The 10-K warns that hyperscalers 'may change their orders or buying patterns with us with limited advance notice', and Cisco has prepaid suppliers against these orders (C14).
- IDC ranks NVIDIA first in data-centre Ethernet switching after revenue up 192.7% in a year (C27): the AI build-out is being won mostly by others.
What we still do not know
- How much of FY27's growth is more equipment rather than higher prices. Cisco does not publish units, and the trackers that do sell them.
- How firm the $9.3B of AI orders is, and what a cancellation would cost Cisco.
- Whether Cisco's share of AI data-centre switching is rising or falling. Outside counts suggest falling, but do not say.
The evidence under this - 3 claims
Dell'Oro measured campus switch prices up 19% in 2Q 2026 (C12), far above single digits for the market as a whole.
- The 10-K warns that hyperscalers 'may change their orders or buying patterns with us with limited advance notice', and Cisco has prepaid suppliers against these orders (C14).
- IDC ranks NVIDIA first in data-centre Ethernet switching after revenue up 192.7% in a year (C27): the AI build-out is being won mostly by others.
What would change our view
- Neutral→AttractiveA cheaper price on unchanged forecasts
It needs:
- ○The shares fall to about 17 times what analysts expect Cisco to earn in FY27, from about 23 today.about $86.39 today, 27% below the last close
- Neutral→AttractiveThe growth outlasts the price increases
It needs all of:
- ○Networking orders still grow at least 10% from a year earlier in the third quarter of FY27, after the price rises have passed.checked at the next results, due by 12 Nov
- ○AI revenue from cloud giants reaches at least $7.5B in FY27, with the adjusted gross margin at 65% or above.checked at the next results, due by 12 Nov
We would also be wrong if
- The adjusted operating margin falls below 33% because memory costs outrun the price rises.
What is coming
- 12 November 2026 Q1 FY27 results: Revenue against the $18.0B to $18.2B guide, the gross margin against 65% to 66%, and orders excluding hyperscalers.
Every dated event ahead
- 12 November 2026 Q1 FY27 results: Revenue against the $18.0B to $18.2B guide, the gross margin against 65% to 66%, and orders excluding hyperscalers.
- 11 February 2027 Q2 FY27 results: Whether AI revenue is on the path to $7.5B and the gross margin holds as memory costs keep rising.
- 13 May 2027 Q3 FY27 results: Networking orders once the price increases begin to lapse: the test of how much growth is units.
Since we wrote this
- 7 OctThesis writtenNeutral, medium convictionWritten seven weeks after Q4 FY26, with the shares up 73.6% in a year and 9.5% below their high.
Also checked 3 times with nothing new to act on.
Sources 16
Sources - 16
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2026-09-02what it sells and to whom, the named competitors, revenue by product category, the 11% channel partner, memory costs and purchase commitments, inventory, debt and maturities, the restructuring plan, headcount and the risk factors on hyperscaler ordersbacksC01C02C08C14C18C20C28C30C32
- S02primarycompany release2026-08-12Q4 FY26 results, orders, AI infrastructure orders and revenue, the GAAP to non-GAAP reconciliation, RPO, capital returns and the Q1 and FY27 guidancebacksC02C03C04C05C06C14C16C18C19C22C35
- S03primarytranscript2026-08-12Cisco Q4 fiscal 2026 earnings call transcript (FMP), held 12 August 2026orders by customer and product, the AI revenue target, the price increases and memory share of cost, the Mythos refresh pipeline, Silicon One and TSMC supply; nine analyst questions, chiefly on margins, durability and the AI order trajectory
it was about 5 points in terms of top-line revenue growth that we saw in Q4
backsC04C05C06C07C24C25C33C35 - S04primarycompany filing2025-10-28directors and officers, ownership, the annual cash incentive and performance share designbacksC28
- S05secondaryvendor data2026-10-07Research pack (FMP market data, FINRA, SEC filed figures), frozen as research-pack.jsonprice and range, the price move split, analyst estimates and the rating series, price target drift, short interest, insider statistics, the filed competitor cohort and the earnings historybacksC15C16C22C23C29
- S06primaryindustry data2026-06-17the switch and router market by segment and vendor: Cisco's share, NVIDIA first in data-centre switching, the campus refresh and its price inflation
Cisco's total Ethernet switch revenues increased 24.0% YoY in 1Q26, capturing 29.3% market share, per IDC.
backsC10C11C27 - S07primaryindustry data2026-09-08Dell'Oro Group: Market prices skyrocket, driving campus switch market to growth in 2Q 2026 Dell'Oro Groupcampus switch prices up 19%, every vendor outside China raising prices, Cisco gaining share, memory shortages into 2027
the campus switch average selling price (ASP) grew 19 percent, leading the market to positive revenue growth.
backsC12 - S08primaryindustry data2026-08-06Dell'Oro Group: Campus switch refresh gets boost from AI cybersecurity threats (July 2026 five-year forecast) Dell'Oro Groupthe refresh of unsupported equipment as the campus driver, outside the company
the need to refresh unsupported equipment is driving the Campus Ethernet Switch market, and threats exposed by AI models such as Mythos will accelerate the replacement urgency.
backsC13 - S09primarycompany filing2026-02-17Arista Networks Form 10-K for 2025, Item 1 Competition Arista Networksa rival's view that Cisco historically dominated data-centre and campus networking, and that Nvidia and white-box vendors on open-source software competebacksC26
- S10primarycompany filing2025-12-18Hewlett Packard Enterprise Form 10-K for the year ended 31 October 2025, Competition Hewlett Packard EnterpriseHPE, now owning Juniper, names Cisco first among its networking competitorsbacksC26
- S11tertiarynews2026-02-12the stated objection after Q2 FY26: a gross margin guide below expectations on memory costsbacksC23
- S12tertiarynews2026-08-13the stated objection after Q4 FY26: a 65% to 66% gross margin guide against about 66.1% expectedbacksC23
- S13tertiarynews2026-05-14Wealth Professional: Cisco posts its biggest stock rally since 2002 after doubling AI order target Wealth Professionalthe reason given for the 13.4% rise after Q3 FY26: a doubled AI order target and raised guidancebacksC23
- S14primarycompany filing2026-10-07Form 4 filings for the year to 7 October 2026, read by scripts/insider_fetch.py95 open-market sales and no purchases, 92 of them under Rule 10b5-1 plansbacksC29
- S15primarycompany filing2026-10-07revenue, costs, operating income, cash flow, debt and diluted shares for FY2021 to FY2026backsC02C15C19C20C21C31
- S16primaryindustry data2025-07-30IBM newsroom: Cost of a Data Breach Report 2025 (with Ponemon Institute) IBM / Ponemon Institutethe average cost of a breach, globally and in the US
The global average cost of a data breach fell to $4.44 million, the first decline in five years, while the average U.S. cost of a breach reached a record $10.22 million.
backsC36