Is Cisco Systems a Buy After Its Latest Earnings Report?

After market close Thursday, Cisco Systems (NASDAQ:CSCO) delivered a beat-and-raise quarter, posting double-digit percentage gains in key fundamentals. It also notched new records in certain line items. So, given all that winning, the stock logically traded higher the following day, right?

Wrong. Investors, accustomed to robust growth and estimates-beating quarters from tech hardware companies, found several developments in the earnings report concerning. Meanwhile, events outside of the company's control were putting the hurt on industry stocks on Friday, and Cisco's shares fell by more than 6%. That's quite the dichotomy, so here's a look at where that places the stock just now.

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New record recorded

In Cisco's first quarter of fiscal 2027, it earned $18.5 billion in revenue, setting a new all-time high. That figure was also up 24% year over year. Net income not under generally accepted accounting principles (non-GAAP, or adjusted) saw an even bigger leap, improving by 39% to $5.6 billion ($1.40 per share).

Both figures topped consensus analyst estimates, though not overwhelmingly. On average, Cisco-tracking pundits were modeling revenue of slightly over $18.1 billion, and adjusted earnings per share (EPS) of $1.32.

One of the primary drivers of the company's revenue growth was, unsurprisingly, the build-out of artificial intelligence (AI) compute capacity. On the bottom line, profitability was helped by a workforce reduced by layoffs.

In its earnings release, the company quoted CEO Chuck Robbins as saying that "Organizations are turning to Cisco for our trusted, market-defining technology and our expertise to help them scale, secure and optimize their environments for the agentic AI era."

"We are in the very early stages of a multi-year networking supercycle, and we're confident in our ability to continue capturing the multi-billion-dollar opportunity it represents for Cisco," he added.

That confident talk was backed by a guidance raise. Cisco management now expects full-year fiscal 2027 revenue of $74.8 billion to $75.8 billion; its previous forecast was $72.2 billion to $73.4 billion. The adjusted EPS estimate also received an upgrade, to a range of $5.47 to $5.53 (up from $5.05 to $5.11).

Reasons to be cautious

Amid these positive developments, savvy investors identified several trends they didn't find to be so sunny. Total product orders, which matter for a hardware purveyor like Cisco, rose 21% year over year in the first quarter. That's solid, but it was well under the 35% in the fourth quarter of 2026. This was understandable, as hyperscaler clients were over-busy in the company's fourth quarter; their orders during the period soared to $4 billion. Regardless, a notably declining growth rate is exactly what shareholders don't want to see with a hardware maker.

Additionally, adjusted gross margin fell far enough to notice. Due to higher costs for memory components and a greater contribution from lower-margin AI networking products to overall revenue, it dipped to 65.6% from the year-ago figure of 68.1%.

Trailing performance matters less than future performance, of course, but some coming quarters might be a bit cloudy for Cisco. On the conference call discussing the first-quarter results, CFO Mark Patterson noted the anticipated "tougher compares and a little bit less visibility" the company expects in the second half of the new fiscal year.

Another short-term negative factor isn't the company's fault. That's the sudden emergence and fallout of the Jensen Huang scandal. Huang, a co-founder and the longtime CEO of bellwether AI chipmaker Nvidia (NASDAQ:NVDA), became embroiled in a situation involving an alleged spy from China, and stepped down from his post. While Cisco and Nvidia compete in certain product segments, they are also business partners in several hardware segments. Anytime a company's leader exits the scene, questions immediately arise about the continuity of the business' strategy. So far, there's been no indication that interim CEO Colette Kress will shake up Nvidia's existing plans. Still, she hasn't promised allegiance to Huang's goals and desires for the company, either.

I think the reaction to the negative aspects of the earnings release overshadowed its many positives -- not least those deep-in-the-double-digits growth rates, and the usual high-margin net income figure. That guidance raise was nothing to sneeze at either, and I'd be encouraged by management's conviction that the encouraging growth rates should continue. We should also bear firmly in mind that spending on AI build-outs can be lumpy, given the continuing frenzy of this arms race and the urgency of advancing such projects. I'm not concerned about the ups and downs in order growth, and folks considering a Cisco buy shouldn't be either. This moment feels like a good opportunity to get a long-time and trusted hardware supplier at a discount.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems and Nvidia. The Motley Fool has a disclosure policy.