Cisco & Cerebras Orders Up, Stocks Down

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Jon Quast discuss:

• Cisco earnings.
• Strong hardware, weak software.
• Cerebras, making sense of its confusing earnings.
• Can innovations like Cerebras threaten the AI incumbents?
• Hidden Gems earnings lightning round.

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A full transcript is below.

This podcast was recorded on Aug. 13, 2026.

Tyler Crowe: The wild ups and downs of earnings season continues. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I’m your host, Tyler Crowe, and today I’m joined by longtime Fool contributors, Jon Quast and Matt Frankel. Guys, it has been a wild up and down of the second quarter. Look, we could go into the several reasons, and maybe once the earning season dies down, we'll really do a postmortem of why this seems to be happening more with the AI trade recently and the volatility of the recent stock market. But we're a little busy with earnings right now.

We had a couple of big earnings reports. We had Cisco, we had Cerebras, which is a new IPO, a lot of investor excitement around that. Then we really dug into some under-the-radar stocks, doing a little bit of a lightning round, letting us indulge our analyst tendencies a little bit here. But let's start with Cisco. Shares of Cisco are down 7.4% as we record. Considering the moves we've seen so far in the second quarter, that's actually a rather mild reaction for the stock. As with anything that's selling equipment to data centers and AI, sales growth looked great. But it seems as though the fly in the soup was related to service revenue, which came in a little lower than expected. Matt, to start with you. What stood out in the report?

Matt Frankel: About 85% of the companies in the S&P 500 have beat earnings expectations this quarter. It begs the question, why do we have earnings expectations at this point? But an earnings beat alone isn't enough to move the needle, it seems, this quarter. Even a beaten raise is not enough to move the needle here. Cisco itself has now beaten earnings estimates for the past five quarters in a row, so it's just expected at this point. The AI story was impressive. The latest guidance, which was already revised upward several times, was calling for about nine billion dollars in AI orders this year, and Cisco produced 9.3 billion. But honestly, that's not as impressive of a beat as we've seen Cisco make in recent quarters. Remember their original guidance was for $5 billion. They beat that through three quarters. That was an impressive beat. Maybe the market's starting to think that the growth is appropriately priced in. Future revenue growth could be a lot stronger than the numbers suggest. Cisco's product orders in Q4 grew by 35% year over year compared with just an 18% revenue growth rate. That implies we might see an acceleration coming up.

Notably, though, management didn't provide new guidance for that AI order number. I was certainly looking for that for the 2027 fiscal year, and I have to believe many investors were, as well. Even after today's reaction, Cisco is trading for about 40 times earnings, and it's still within a few percentage points if it's all time high. It seems the beaten raise it just simply didn't live up to expectations, but all in all, a very solid quarter.

Jon Quast: What decade is it? Cisco, this is incredible revenue growth, and it's not just revenue growth that stood out for me, Tyler. It's also the earnings growth. We did have the 12% top line growth for the whole year. But you look at the earnings per share growth. That's profit minus the share account divided over the share account, 31% growth for earnings per share. That is a good sign when earnings per share are growing faster than revenue. Then, for the upcoming year also expecting maybe 16% revenue growth, so a slight acceleration into the coming year, but then also that earnings per share growth, once again, projecting better than 20% growth for the earnings in the upcoming year. Yes, Matt is right. It is trading at a premium valuation at 37 times earnings. That said, the top-line growth is great. The profit growth is even better, and the strong demand that it is seeing certainly helps with that profitability. That's what stood out to me.

Tyler Crowe: For what it's worth, forward estimates have it at about a price-to-earnings of about 26. But as Matt said, everyone's beating expectations all the time, so maybe that's even sandbagging it a little bit here, doing the dog-and-pony show of earnings expectations and all that stuff. Now, look, the stock is down, so I did try to dig and be like, well, why is that? Everything you guys mentioned all seems pretty good. Something that stood out was the remaining performance obligations. RPOs, if you want to use cool kid jargon, it grew about 7% in the most recent quarter. Compared to other AI hardware and software companies, that is rather light. As much as there is demand, and it is incredibly fierce demand. At the same time, competition in this industry is getting stronger, as well as new technologies are coming out that could somewhat displace a little bit of what Cisco may be doing. My question to you guys was seeing those RPO numbers maybe being a little bit more tepid. Is this a case where Cisco may be losing shares to the Arista Networks or someone else in this industry that I might not be considering.

Jon Quast: Well, I think we need to be very careful looking at the percentage numbers when it comes to Cisco, especially in comparison to other companies that are reporting percentages. You think about Cisco, and the reason I did jokingly say, what decade is this is that this is a legacy business. This company has been around a while, already generates more than $60 billion in annual revenue. This is a very large business, and many of Cisco's customers are more of these legacy customers. There is a component here that you're remaining performance obligations, if they're being driven by AI, that's going to be somewhat lost in the overall mix of the business because it has so many legacy customers. Whereas maybe a more pure-play competitor isn't going to experience that, so the percentage numbers are going to look a lot different.

I think we need to be careful from drawing too many conclusions with that. If we can just zoom out, I think from a Hidden Gems Investing perspective, we are looking for not necessarily a hidden company, but something hidden in the business analytics that maybe people are overlooking for this reason or the other, that we're looking for something hidden that contribute to a stock performing well over time, I want to give Dell as an example here. Just a couple of years ago, Dell's AI server numbers were just a very small percentage of the business, but they were really starting to uptick really rapidly. You could start seeing that, hey, Dell is this huge legacy business, but all of a sudden becoming an AI player. Now that stock is up nearly 800% in just three years, but some of the signs were there earlier for those who were going to dig beneath the surface. I think that, that generally speaking, can be the case. When you see a legacy business that's all of a sudden benefiting from some booming industry, it might be getting lost. Those numbers, that narrative might be getting lost in the mix. Taking some time, digging deeper beneath the surface can sometimes yield something really important from a Hidden Gems perspective. I'd say for Cisco, don't dismiss it. We are looking at AI infrastructure orders up nearly 400% year over year, and it's fiscal 2026, looking for nearly 90% growth in those AI infrastructure orders in the coming year. That is hidden beneath the surface, and it's worth paying attention to.

Matt Frankel: To unpack your question a little bit more, Tyler, Cisco was losing to Arista at first when the AI boom first came up. Then they made a really smart decision to unbundle their full hardware stack, meaning that Cisco chips could be installed in devices they didn't make. That really helped them gain ground. You're right. The RPO looks like. But Cisco's RPO is majority made up of software renewals, the legacy business Jon was talking about. As Jon said, for now, AI is just a small percentage of what it does. The orderbook grew sharply, as I mentioned, 35% year over year, and that doesn't show up mostly in the RPO numbers because Cisco is shipping these products honestly too quick for them to just sit on the backlog. Arista is growing faster than Cisco right now, if you look at just the top line. But it's really a case of pure play versus conglomerate. It'd be comparing Berkshire Hathaway to a pure-play energy company when you're looking at energy growth. The company's order book shows that it is still gaining AI traction, as Jon just mentioned. Their blended growth looks slower for sure, but right now, the rising hit is lifting all shifts in AI network.

Tyler Crowe: Well, hopefully, we'll have a repeat performance from Cisco that we saw from Dell over the past three years. It's certainly trending that way with the stock up 62% over the past year. Maybe 7% seems pretty small pennies by comparison. Coming up to the break, we're going to look into Cerebras' earnings.

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Tyler Crowe: I got to admit, in between segments, I realized I made a bit of a mistake. It is not Cerebras, apparently. I stay working from home way too much and don't get out and hear other people talking. Cerebras Systems is the company we're going to be talking about. This is what I get for not listening on the conference calls again. Everyone can make fun of me in the comments for mispronouncing this company's name. Makes me look like I don't know what I'm talking about. But well, we're going to do it anyways. The funny thing is here is, this is a company, it's gotten a lot of Wall Street and investor buzz, and it's not having a great day on Wall Street. Company reported earnings that were after the close yesterday, and the stocks down about 13% as we're taping. This is a novel concept for computing an inference that recently went public. Guys, what did Cerebras Systems report say, and what were your reactions?

Jon Quast: Well, look, Tyler, everything about this company is confusing, from what it does to how it reports its numbers, apparently, to how its name is pronounced. Investors can be forgiven here if they needed a minute just to take some time and process what this report was all about.

Matt Frankel: At the core, the idea behind this business is simple. They build larger chips than any of the other ones that essentially take the place of several Nvidia chips and other components being networked together. That's the idea. It would take less power, lower latency, things like that. The two revenue numbers in the report are uniquely confusing. They report GAAP revenue, which is what we all expect, and then a number called core revenue, which is actually not only different but higher. That could be confusing to investors. GAAP revenue grew 74%, but that missed estimates. Cerebras' core revenue more than doubled and beat management's own guidance. Now, their core revenue, it excludes the impact of warrants that the company issues to some of its largest customers, specifically OpenAI.

Accounting rules say that you have to account for the value of those warrants and subtract them from your revenue. It's not really a revenue hit, which is why they choose to report core revenue, but it's confusing. During the quarter, the revenue mix shifted toward Cloud revenue away from hardware, driven by its OpenAI deployments, while hardware revenue actually fell by 23%, so that could right there tell you why the stock fell. Their core gross margins, or because of some other factors, fell by nearly six percentage points. It's temporarily renting back some of the hardware previously sold. Management said Q3 should be the low point for margins, and it should come up. But with the money-losing business that a lot of people don't really understand the accounting behind and things like that, it just adds to the confusion. Cerebras' bulkase it's got over a $25 billion backlog. It has nearly $9 billion dollars of cash on its balance sheet, and management specifically said, and I'm quoting, "that AI demand is through the roof, and revenue will triple year over year in 2027." This is a business that investors understandably simply seem to be having a tough time wrapping their heads around, and I really don't blame them with a revenue miss, margin issues, and a net loss that was surprisingly not great. I'm not terribly surprised that the stock fell in reaction to this quarter's report.

Jon Quast: You look at the guidance, and I do want to just correct the record here from some of the chatter I've seen on social media, some investors out there saying, Cerebras is intending to 10X its revenue in the coming year. That is not what the company said. Matt pointed out the correct number. It expects to triple its revenue year over year in the coming year, which would be absolutely incredible, and I wish him well. But the 10X number, that is for the manufacturing. This is a fabulous semiconductor company, which means it doesn't make its own stuff. That is made by other companies, specifically, Taiwan Semiconductor is the supplier here. That 10X number is from its partners saying that they're going to increase the manufacturing. You look at Taiwan Semiconductor, it's a pretty conservative company, so I do think that in a way, this is a vote of confidence to dedicate some energy to making sure that it can 10X the supply of Cerebras' products. But I do want to point out the difference here. The revenue we're talking core revenue not actual revenue. The core revenue looking to triple, but the manufacturing looking to 10X, there's going to be, then that is a huge expected increase of revenue ongoing beyond the coming year.

Tyler Crowe: Jon, I'm shocked to discover that things that are said on social media aren't necessarily correct. Look, Cerebras hits at one of the challenges that I have been struggling with to work through with all of this AI spending, AI infrastructure build-out stuff. It claims it's AI chips, which look closer to the size of bathroom floor tiles than what we would normally see in CPUs or GPOs. They claim they're faster. They have higher on chip memory. They require less power than current offerings. If it is as powerful as it claims, whether that's true or not, it remains to be seen, I would, in theory, solve a lot of the problems we see with memory and electricity demand because we can do more with less. One of the things I've always said is with the current spending and the trajectory of what we have with the equipment we have, it's not going to work because it just will take too much power, basically. To me this seems to undermine a case for some of the biggest winners so far, like Nvidia some of the memory ship members, and we can even go further down the AI infrastructure chain of, like, maybe we just need a couple fewer data centers of the line here. Do you agree with this, or am I perhaps reading it wrong?

Matt Frankel: It certainly feels Cerebras is doing more with less should hurt Nvidia and the memory companies and the other chipmakers. But so far in this cycle of AI adoption, every single efficiency gain we've seen has just expanded the appetite overall. In other words, right now, there's so much demand that both Cerebras and Nvidia can grow exponentially. Nvidia might be nearing the end of its exponential growth because its revenue is more than Walmart, not really but getting close. But right now cheaper AI has meant more AI, not less, and the disruption is real. But the fact that Cerebras is relatively tiny compared to Nvidia and has some margin issues of its own and production issues and ramp up issues, it really shows in Nvidia’s moat right now. I don't think Nvidia should be too worried for the time being, and Nvidia is not exactly just laying down and letting themselves be disrupted. They have a much deeper pockets than even Cerebras for innovation. I don't think they should be too worried.

Jon Quast: I don't think it's as simple as saying Nvidia versus Cerebras. I think the answer is much more complicated and nuanced than that because of how they actually work in the real world. Nvidia, of course, with its graphics processing units, GPUs, by the way, Nvidia didn't invent those for AI. They preexist the current boom in AI. The reason that they were adopted into AI, specifically training, was because they were very good at general-purpose activities. What Cerebras is building is an ASIC. This is a custom thing. This is very good at a specialized activity and specifically inference, but for specific configurations. This is why it's partnered with OpenAI, for example, so that OpenAI can partner with Cerebras for certain configurations for its custom hardware option. You look at that, you're basically answering a question between generalization and specialization. Is all of the AI out there going to start specializing, and that is going to give greater rise to a player such as Cerebras, or are all of these software products out there are going to say more general purpose, in which case that favors a more general hardware option? I don't know if that's an easy question to answer. I think that my answer is probably both. I think that you're going to see a rise generally speaking, and that's going to be good for GPUs. But I do think that you're going to start seeing some specialization and that's going to give rise to some niche markets that Cerebras can fill. The question then becomes, how big are those niches?

Tyler Crowe: It certainly going to be the battle of the AI data enter space over the next couple of years as these models become more powerful and more stuff is custom built for these models. It's coming up after the break. We're going to indulge our analyst tendencies a little bit and do a lightning round of earnings so far this quarter. Jon, in our first segment, you were mentioning the Hidden Gems being the hidden assets of companies, and part of Hidden Gems Investing style isn't just obscure companies, but there is also the hidden aspect where it is hidden companies, maybe off not the companies most people would think of. We've been getting a lot of feedback from listeners that we should probably indulge in a classical Hidden Gems part of the phrase and indulge a little bit more here. We're going to do basically the stock market equivalent of some deep cut or live album indie band stuff for this lightning round here. Earnings are starting to wind down, and so we're doing a lightning round of under-the-radar earnings reports. The companies that we love, we don't get to talk them much about. Guys, you get to go full stock market sicko here. What do you want to highlight? Jon, we'll start with.

Jon Quast: I love highlighting Xometry. Anytime I get a chance, that is ticker symbol XMTR. This is a company that I was fortunate enough to find when it was trading down in the teens, now up in the 90s, but this is a company for most people who don't know what this company does. Think of all your custom manufacturing that exists in the world. Most of that is offline. Most of that you need to be close to a shop. You need to email them if you need something made, manufactured, you need some bolts made, whatever. You have to then talk to them on email maybe, or just go into the shop, and it's got to be close to where you need the product. Xometry changes that by creating basically the ecommerce of custom manufacturing, and what its secret sauce is, is basically you submit your plans through the Xometry portal and it is able to give you through AI instant pricing. It prices the job instantly, and you can take it or leave it. Lead times are cut drastically down, and then it shops out its bid to these custom manufacturers who can actually do the work. It chops it out at a slightly different price.

The spread is what its revenue, what its profit is. It's not ever going to be a great gross margin business necessarily, but the revenue growth and the case for this, I think is huge, and the top line growth is showing up 41% in the most recent quarter. Last week that it reported it has reported four straight quarters of accelerating growth right now. One of the things that attracted me to Xometry early on, it's not the first company to try this, but the user growth has been just fantastic. Active buyers on the platform up 20% in the most recent quarter, record new addition. The adoption curve is what showed me that this could be a winner long-term. Still less than 1% penetrated into its total addressable market.

But what I think could be huge here is it just partnered with Siemens. This is a company that helps automakers and airlines start to plan out their products and draw it all up, design the products that they need. Integration with Xometry now helps them have pricing in real time. Then, when they get everything just the way that they want, they can basically hit a buy button, and now all of a sudden, that is being shopped out on the Xometry platform. I think that this could be a huge adoption driver long term. Xometry is a company that I'm happy to highlight.

Matt Frankel: I wanted to bring up a fintech company, a surprise that I haven't talked about in a while. It's called Marqeta, ticker symbol is MQ. They're known for providing third-party payment infrastructure for other companies. Most notably, their biggest customer is Block. They provide the card payment infrastructure for Cash App. That makes up a little over 41% of their revenue, but that's down significantly. It was 46% a year ago. It was the majority of their income a couple years ago. They got some much-needed diversification, and I really wanted to highlight this one because it feels like they’ve turned a corner profitability-wise. A total payment volume of $120 billion. That was up 32% year over year, the fourth straight quarter where that growth rate was above 30%.

Not just that, they actually had positive net income on a GAAP basis, not just on an adjusted basis or something like that. The second quarter since they've turned profitable, adjusted EBITDA margin is now at 21% in climbing, they're buying back shares because they think it's cheap. Marqeta had its struggles. It actually did a reverse split not that long ago because it had been beaten down. This was a COVID-era IPO. The stock was down on this report due to a accelerating growth forecast. A lot of that's because Cash App is not an accelerating source of growth for them anymore. It's very cheaply valued on a price to sales ratio historically for this stock. The question is long term, can it keep those growth rates up while diversifying away from Block? That remains to be seen. That's why it's cheap, but it's one that's definitely back on my radar right now.

Tyler Crowe: Well, I went through my Rolodex, trying to find the obscure stock I wanted to go through, and I saw that BBB Foods, ticker TBBB reported today, and the stocks up 15%. I was like, well, I just got to cover this one. For those who may have not have heard this company, it is a hard discount grocery retailer. Think like Aldi, maybe Lidl, if you live in Europe, that no-frills, not a lot of decoration. Just moving product as quickly you can at a relatively low price. This company is completely based in Mexico, has about 3,000 stores. For the quarter, sales were up 38.7% year over year, and same-store sales growth. The comps basically at the existing stores was up 20%, which I think was absolutely incredible. I haven't seen a lot of retailers these days putting up same-store sales memories like that. Store account growth was about 9%. They added about 125 new locations in the quarter, puts them on pace for about 500, 5,600 they want to put in this year? It sounds a lot, but with 3,200 so far, they're aiming for 14,000 total all across Mexico, so there's a lot of left to growth there. What was surprising to me.

Again, they're growing really fast, and despite the high investment levels, they're generating free cash flow, basically because they're moving products so quickly. Again, that rapid same-store sales growth. They're generating free cash flow. It's just the turnover this company has been absolutely incredible, they're generating immense amounts of free cash for what is a relatively small start-up Mexican grocery retailer. I fell in love with this company when I read the IPO prospectus a couple of years ago, bought shares, and I've been delighted with this success so far. Hopefully, and we can make this a tradition of every earnings report we get to indulge in the obscure stocks that we love to follow every once in a while, and hope the listeners enjoyed it, as well.

But that is all the time we have for today. Matt, Jon, thanks for your insights. I'm going to hit "Disclosure" and we'll get out of here. As always, people in the program may have interest in the stocks to talk about, and The Motley Fool may have recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. See our full advertising disclosure, please check out our shown out. Thanks to you producer Bart Shannon and the rest of The Motley Fool team. Jon, Matt, and myself, thanks for listening, and we'll chat again soon.

Jon Quast has positions in Xometry. Matt Frankel, CFP® has positions in Berkshire Hathaway and Block. Tyler Crowe has positions in BBB Foods and Berkshire Hathaway. The Motley Fool has positions in and recommends Arista Networks, BBB Foods, Berkshire Hathaway, Block, Cisco Systems, Nvidia, Taiwan Semiconductor Manufacturing, Walmart, and Xometry. The Motley Fool recommends Marqeta. The Motley Fool has a disclosure policy.