Cisco Systems (CSCO Quick QuoteCSCO - Free Report) reported first-quarter fiscal 2027 non-GAAP earnings of $1.40 per share, up 40% year over year and beating the Zacks Consensus Estimate by 5.26%. Strong networking demand, AI infrastructure growth and operating leverage supported the year-over-year improvement.

Revenues increased 24% year over year to $18.517 billion, surpassing the consensus mark by 2.14%. Product revenues increased 32%, while services revenues rose 1%. Total product orders grew 21% year over year, reflecting broad-based demand across geographies and customer markets.

CSCO’s Networking Growth Accelerates

Networking revenues surged 43% year over year to $11.132 billion. Growth reflected triple-digit increases in AI infrastructure, double-digit expansion in data center switching and continued strength in campus networking.

Networking product orders increased 28%, marking the ninth consecutive quarter of double-digit growth. Campus networking orders advanced 14%, while industrial IoT orders jumped approximately 50%. The next-generation campus portfolio continued to ramp faster than previous product launches.

Wireless orders increased more than 20%, with Wi-Fi 7 accounting for more than 60% of access point orders. New products represented less than 10% of campus switching orders, highlighting the early stages of Cisco's multiyear network refresh opportunity.

Cisco’s AI Infrastructure Momentum Strengthens

Cisco raised its fiscal 2027 hyperscaler AI infrastructure revenue expectation to $9 billion from $7.5 billion, representing more than double the fiscal 2026 level. The company attributed the increase to sustained customer demand and improved visibility into deployments.

Cisco secured three new AI infrastructure design wins during the reported quarter, bringing the total to 18 over the past five quarters. Two involved Silicon One P200-powered systems for data center interconnect and scale-across applications, while another involved 1.6-terabit optics.

Demand also broadened beyond hyperscalers. Orders for Nexus data center switches associated with AI deployments increased 47% year over year, supported by neocloud, sovereign cloud and enterprise customers.

CSCO’s Security and Software Trends Improve

Security revenues increased 7% year over year to $2.120 billion, supported by Splunk, network security and secure access service edge offerings. Security orders excluding Splunk increased approximately 15%, while firewall orders grew more than 30% for the third consecutive quarter.

Cisco’s Zero Trust Secure Access platform reached 5,400 customers, adding nearly 800 during the quarter. AI Defense approached 500 customers and protected more than 2 trillion tokens monthly, reflecting growing adoption of AI security solutions.

Collaboration revenues increased 8% to $1.136 billion, while Observability revenues rose 2% to $279 million.

Total software revenues increased 8% to $6.132 billion. Subscription revenues represented 44% of total revenues, while annualized recurring revenue reached $32.7 billion, up 4% year over year.

Cisco Balances Margin Pressure With Operating Leverage

Non-GAAP gross margin contracted 250 basis points (bps) year over year to 65.6%. Product gross margin declined 350 bps to 63.7%, primarily reflecting a higher hardware mix and elevated memory costs. Productivity improvements and price increases partially offset these pressures.

Services gross margin expanded 220 bps to 72.9%.

Non-GAAP operating expenses increased 2% to $5.140 billion but declined to 27.8% of revenues from 33.7% a year earlier.

Consequently, non-GAAP operating margin expanded 340 bps to a record 37.8%, demonstrating operating leverage despite gross-margin headwinds.

CSCO’s Cash Flow and Recurring Metrics Remain Solid

Cash, cash equivalents and investments totaled $15.845 billion at the end of the fiscal first quarter. Operating cash flow increased 36% year over year to $4.357 billion.

Remaining performance obligations reached $46.2 billion, up 8% year over year. Product obligations increased 7%, while services obligations advanced 9%. Deferred revenues grew 7% to $30.058 billion.

Cisco returned $3.656 billion to shareholders through $2.002 billion in share repurchases and $1.654 billion in dividends. Approximately $6.1 billion remained under its repurchase authorization.

Cisco Raises Fiscal 2027 Outlook

For the second quarter of fiscal 2027, Cisco expects revenues between $18 billion and $18.2 billion. Non-GAAP earnings are projected at $1.34-$1.36 per share, with a non-GAAP gross margin of 65-66% and an operating margin of 36-37%.

For fiscal 2027, Cisco now projects revenues of $74.8-$75.8 billion and non-GAAP earnings of $5.47-$5.53 per share.

The revised outlook reflects stronger hyperscaler demand and broad-based growth in Cisco's core business. The company expects fiscal 2027 non-GAAP operating margin to reach approximately 36%, supported by revenue growth and disciplined expense management.

Zacks Rank & Other Stocks to Consider

Cisco currently has a Zacks Rank #2 (Buy). 

Some better-ranked stocks in the broader sector include Vertiv (VRT Quick QuoteVRT - Free Report) , Teradyne (TER Quick QuoteTER - Free Report) , and Unity Software (U Quick QuoteU - Free Report) . Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

Vertiv, Teradyne and Unity Software shares have jumped 29.4%, 37% and 13.6% year to date, respectively. Long-term earnings growth rate for Vertiv, Teradyne and Unity Software is currently pegged at 43.81%, 54.38% and 41.63%, respectively.