Cisco Systems (NASDAQ:CSCO) reported second-quarter fiscal 2026 non-GAAP earnings of $1.04 per share, up 10.6% year over year and surpassing the Zacks Consensus Estimate by 1.96%. Revenues of $15.35 billion rose 9.7% year over year, exceeding estimates by 1.49%. Despite the positive results, CSCO shares fell 7.47% in after-hours trading, reflecting investor caution amid market uncertainty and valuation concerns.
Q2 Revenue Breakdown
Networking revenues surged 21% to $8.29 billion, driving overall product revenue growth of 13.8% to $11.64 billion, which accounted for 75.8% of total revenue. Software revenues, including total subscription revenues of $7.83 billion, rose 36.9% year over year. Security revenue declined 4% to $2.01 billion, while collaboration revenue increased 6% to $1.05 billion. Observability revenue remained steady at $277 million.
Regionally, the Americas contributed $8.84 billion (+8% Y/Y), EMEA $4.42 billion (+15%), and APJC $2.08 billion (+8%). Cisco’s AI infrastructure orders from webscale customers topped $2.1 billion, highlighting demand for advanced computing solutions.
Operating Performance
Non-GAAP gross margin contracted 120 basis points to 67.5%, with product margin down 90 bps to 50.4% and services margin down 210 bps to 17.1%. Operating expenses rose 6.2% to $5.04 billion but declined as a percentage of revenue by 110 bps. Non-GAAP operating income increased 9.3% to $5.31 billion, while operating margin fell slightly to 34.6%.
Balance Sheet and Shareholder Returns
As of January 24, 2026, Cisco held $15.8 billion in cash and investments and reported total debt of $30 billion. Remaining performance obligations totaled $43.4 billion (+5% Y/Y), with long-term product RPO up 11% to $11.8 billion. In the quarter, Cisco returned $3 billion to shareholders through dividends and share buybacks.
Guidance and Outlook
For Q3 fiscal 2026, Cisco expects non-GAAP EPS of $1.02–$1.04 and revenues of $15.4–$15.6 billion. Non-GAAP gross margin is projected at 65.5–66.5%, with operating margin between 33.5–34.5%. For the full fiscal year, Cisco forecasts non-GAAP EPS of $4.13–$4.17 and revenues between $61.2–$61.7 billion, reflecting continued growth in networking, software, and AI infrastructure demand.
Cisco’s strong second-quarter performance highlights its continued leadership in networking and enterprise technology, despite short-term investor caution. The company’s robust growth in networking revenue, up 21% year over year, demonstrates sustained demand for high-performance infrastructure, particularly in AI-enabled environments. This surge reflects enterprises’ increasing reliance on advanced networking solutions to support cloud, edge computing, and AI workloads, positioning Cisco as a key beneficiary of global digital transformation trends.
The 36.9% increase in software revenue, particularly subscription-based offerings, underscores Cisco’s successful shift toward recurring revenue models. Total subscription revenues of $7.83 billion, representing more than half of total revenue, provide the company with predictable cash flows and higher customer retention, a trend investors increasingly value in the current macroeconomic climate. Meanwhile, security revenue declined slightly, reflecting competitive pressures and a shift in customer spending toward integrated networking and AI infrastructure solutions. Observability and collaboration segments showed steady growth, demonstrating Cisco’s diversified product portfolio.
Regionally, strong results in EMEA (+15%) highlight the company’s ability to expand market share internationally, while continued growth in the Americas and APJC reflects stable demand across mature and emerging markets. The $2.1 billion in AI infrastructure orders from webscale customers signals robust enterprise adoption of Cisco’s high-performance computing solutions, including servers, GPUs, and networking products optimized for AI workloads. This aligns with broader trends of accelerating AI adoption across industries, supporting Cisco’s long-term growth story.
While non-GAAP gross margins contracted slightly, operating efficiency remains strong, with operating expenses declining as a percentage of revenue. This demonstrates Cisco’s disciplined cost management and scalability in integrating new technologies. The company’s balance sheet, with $15.8 billion in cash and investments, and a manageable debt load of $30 billion, provides flexibility to continue strategic investments, including AI infrastructure, cybersecurity, and software innovation.
Looking ahead, Cisco’s guidance for Q3 and fiscal 2026 reflects continued confidence in its growth trajectory, despite potential macroeconomic headwinds. The company’s ability to generate recurring revenue from software, expand AI infrastructure deployments, and deliver shareholder returns through buybacks and dividends makes it an attractive option for long-term investors seeking exposure to enterprise technology. Analysts will likely monitor CSCO’s execution on AI infrastructure and recurring software growth closely, as these areas are expected to drive the next phase of value creation and help maintain Cisco’s leadership in the rapidly evolving networking landscape.
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