Cisco's AI Infrastructure Is Finally Winning Over Hyperscalers

Better late than never for networking giant Cisco Systems (NASDAQ: CSCO). The market leader in Ethernet switches and routers has been losing out to Arista Networks and Nvidia in the battle to supply hyperscalers with the networking gear necessary to power their enormous AI data centers. While the company still dominates the overall market, the artificial intelligence boom has disrupted that dominance.

Things started to look up for Cisco in the first quarter of fiscal 2026 as the company's AI-centric portfolio racked up sales with hyperscale customers. Cisco booked $1.3 billion in AI infrastructure orders from hyperscaler customers in the first quarter, a "significant acceleration." The company also received more than $200 million in orders from neocloud, sovereign, and enterprise customers.

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AI contributed to a strong quarter

While AI-related revenue is still small, it's starting to meaningfully contribute to Cisco's results. The company reported first-quarter revenue of $14.9 billion, up 8% year over year. Adjusted earnings per share shot up 10% to $1.00, beating the company's own guidance.

Overall product orders grew by 13%, with networking product orders up by a high-teens percentage. The AI infrastructure product orders were split between Cisco Silicon One, the company's family of programmable networking chips, and optics products. Cisco's 2021 acquisition of Acacia, a high-speed optical interconnect provider, appears to be paying off.

Product orders grew across all areas, with 16% growth in the Americas, 8% growth in Europe, the Middle East, and Africa, and 13% growth in the Asia-Pacific region. Orders also expanded across all customer groups, with the service provider and cloud group standing out with 45% order growth.

Cisco's security and collaboration segments recorded small revenue declines in the first quarter, but networking grew by 15% year over year and offset those declines. Networking accounts for roughly half of the company's total revenue.

A growing AI pipeline

Cisco expects to recognize more than $3 billion in AI infrastructure revenue from hyperscalers in fiscal 2026. Optics in particular is in demand, with the company noting that hyperscaler demand for optics products accelerated at a faster rate in the first quarter compared to the final quarter of fiscal 2025.

Outside of hyperscalers, Cisco has a $2 billion AI connectivity pipeline for fiscal 2026 with neocloud, sovereign, and enterprise customers that's distinct from its hyperscaler business. Cisco believes that its networking product order growth in the quarter is an indication that customers are preparing their networks for an increase in AI workloads.

AI infrastructure demand contributed to Cisco's strong revenue guidance for the second quarter and fiscal 2026. Next quarter, the company expects to produce revenue between $15 billion and $15.2 billion, up 8% year over year. For the full year, the company is now planning on 7% revenue growth compared to fiscal 2025 after boosting its outlook to a range of $60.2 billion to $61 billion.

Cisco's bottom line is also expected to grow, but tariffs are having a negative impact. The company expects adjusted earnings per share between $4.08 and $4.14 for the full year, up about 8% at the midpoint. The company noted that tariffs on China, Mexico, and Canada will impact its results, with tariffs on other countries and on copper, steel, and aluminum having a smaller impact.

Multiple years into the AI boom, Cisco has finally aligned its product portfolio with what hyperscalers and other AI-centric customers need for their AI data centers. With AI product orders accelerating, Cisco is setting itself up to be an AI winner.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, and Nvidia. The Motley Fool has a disclosure policy.