Cisco’s rapid transformation from a legacy, low-growth hardware vendor into an indispensable backbone of global AI data center architecture is the single most compelling reason to buy this long-term favorite. For years, skeptics argued that hardware hyperscalers would entirely build their own networking stacks or rely exclusively on competitors. This firm has shattered that narrative by logging $1.9 billion in hyperscaler AI infrastructure orders in a single quarter, driven by its proprietary systems and market-leading optical transceivers.
With networking product orders expanding at a blistering 50% pace, the company is capturing the physical layer of the AI computing revolution, which requires massive, low-latency data throughput that generic equipment simply cannot support.Furthermore, the firm pairs this powerful growth catalyst with elite-tier operational efficiency and structural revenue predictability. Unlike speculative AI start-ups, there’s a massive $43.5 billion backlog of Remaining Performance Obligations to the table, half of which will be recognized as high-margin software and service revenue over the next twelve months.
The stock trades at 27.6 times the company’s forward earnings forecast. This elevated multiple is fundamentally justified by the structural transformation of the company’s earnings power. It’s no longer a cyclical router manufacturer because it’s successfully repositioned itself as a high-growth AI infrastructure compounder.
CISCO SYSTEMS INC. (Nasdaq symbol CSCO; www.cisco.com) is a leading maker of hardware and software to link and manage computer networks. They include routers, local-area network (LAN) switches, dial-up access servers and software.
In the past few years, the company has expanded its software operations. That steady revenue from subscriptions cuts Cisco’s reliance on hardware sales. Under that plan, in March 2024, the company acquired Splunk Inc. for $28 billion.
That firm makes software that lets organizations analyze their data in real time, and so improve their security
[ofie_ad]
Cisco’s surging AI demand pushes up sales and profits
Thanks to surging demand from operators of artificial intelligence (AI) datacentres, Cisco’s revenue in its fiscal 2026 third quarter, ended April 25, 2026, revenue rose 12.0%, to $15.84 billion from $14.15 billion a year earlier. That beat the consensus forecast of $15.56 billion.
Sales of new equipment (76% of total revenue) rose 16.8%, which offset a 1.4% decline in revenue from software and services (24%).
Overall earnings in the quarter, excluding unusual items, rose 10.4%, to $1.06 a share (or a total of $4.23 billion) from $0.96 a share (or $3.83 billion). That also topped the $1.04 consensus estimate.
Since the start of the current fiscal year, Cisco has received orders related to AI worth $5.3 billion. It now expects AI orders for all of fiscal 2026 will total $9 billion, up from its earlier forecast of $5 billion.
Cisco also plans to cut 5% of its workforce as part of plan to improve efficiency. Severance and other costs will total roughly $1 billion.
If you factor those costs and other unusual items, the company will probably earn $4.28 a share in fiscal 2026. The stock trades 27.6 times that estimate, which is a reasonable multiple considering Cisco spends a high 15% of its revenue on research.
As well, with the April 2026 payment, Cisco raised your quarterly dividend by 2.4%. Investors now receive $0.42 a share instead of $0.41. The new annual rate of $1.68 yields 1.4%.
Including this latest increase, the company has raised its dividend by an average 2.6% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average.
Recommendation in Dividend Advisor: Cisco Systems Inc. is a buy.
