Cisco Stock Plunges 11% Despite Earnings Beat as Margin Concerns Overshadow AI Infrastructure Gains

Cisco Systems suffered a dramatic stock decline on February 12, 2026, with shares plunging 11.19% to close at $75.97 despite delivering quarterly results that exceeded analyst expectations on both revenue and earnings. The networking equipment giant reported fiscal second quarter 2026 revenue of $15.35 billion, beating the consensus estimate of $15.12 billion, while adjusted earnings per share came in at $1.04 versus expectations of $1.02.

The selloff, which erased most of the stock's year-to-date gains, was driven by investor disappointment with the company's forward guidance, particularly around profit margins. Cisco warned that rising memory chip costs would pressure margins in upcoming quarters, offsetting the benefits of strong product demand. The company projects third quarter adjusted EPS of $1.02 to $1.04, merely in line with analyst estimates of $1.03, despite guiding for revenue of $15.4 billion to $15.6 billion above the $15.19 billion consensus.

For the full fiscal year 2026, Cisco raised its revenue outlook to $61.2 billion to $61.7 billion from a prior range of $60.2 billion to $61.0 billion. However, this new midpoint of $61.45 billion still fell short of some analysts' more aggressive expectations. The earnings per share guidance of $4.13 to $4.17 represents only a modest improvement from prior forecasts, disappointing investors who had hoped the AI infrastructure boom would drive stronger profit growth.

CEO Chuck Robbins emphasized the positive aspects of the quarter, stating "We are positioned for our strongest year ever," and highlighting accelerating double-digit growth in product orders across all geographies. Product orders surged 18% year-over-year, with networking product orders accelerating to more than 20% growth. The company's AI infrastructure business showed particular strength, with hyperscaler orders totaling $2.1 billion in the quarter, and management projecting total AI infrastructure orders will exceed $5 billion for the fiscal year.

The networking segment led growth with a 21% year-over-year increase, driven by double-digit gains across campus switching, data center switching, wireless, service provider routing, enterprise routing, and compute products. This performance reflects a major multi-year campus networking refresh cycle that Cisco believes is just beginning. The collaboration division also beat estimates with 6% growth, though the security division declined 4% and observability was flat.

However, services revenue disappointed, declining 1% to $3.7 billion and missing analyst expectations. This weakness in the traditionally stable services business raised questions about Cisco's ability to maintain recurring revenue streams as customers potentially shift spending toward new AI-focused investments. Management attributed some of the services weakness to the transition of Splunk products from perpetual licenses to subscription models, which creates near-term revenue recognition headwinds.

Chief Financial Officer Mark Patterson addressed the margin pressure directly, noting that while the company expects strong demand for systems and optics to continue driving networking segment growth, memory price increases would be a headwind. The company maintained its full-year gross margin guidance but cautioned that achieving targets would require careful cost management. GAAP operating margins came in at 24.6%, while non-GAAP operating margins reached 34.6%, both above guidance ranges.

Cisco's stock had been trading near all-time highs earlier in the week, having appreciated 37% over the past year as investors viewed the company as a beneficiary of AI infrastructure buildouts. The rally was predicated on the thesis that while software companies faced disruption from AI, hardware providers like Cisco would benefit from data center expansion. The sharp reversal suggests investors are taking a more cautious stance on even AI-adjacent technology names.

The company returned significant capital to shareholders during the quarter, repurchasing approximately 18 million shares at an average price of $76.29 for $1.4 billion. With $10.8 billion remaining under its buyback authorization and the stock now trading below the repurchase price, management may accelerate share buybacks. Cisco also raised its quarterly dividend by one cent to $0.42 per share, representing a 2% increase and yielding approximately 2.2% at current prices.

Analysts remain divided on the stock's prospects. Raymond James analyst Simon Leopold noted that tech investors are seeking AI hardware alternatives to challenged software names, which could support Cisco longer-term. However, D.A. Davidson downgraded shares, citing concerns that the market may be overestimating Cisco's ability to sustain elevated growth rates as the networking refresh cycle matures. The key debate centers on whether current order strength represents a sustainable new baseline or a temporary surge that will moderate.