Cisco (CSCO) surges 17% on Q3 beat as AI orders double to $9bn

Cisco Systems shares surged 17 per cent in extended trading on Wednesday after the networking equipment giant posted fiscal third-quarter earnings that breezed past Wall Street estimates and raised its full-year forecast for AI infrastructure orders to $9bn, even as it disclosed plans to eliminate nearly 4,000 roles in a $1bn restructuring designed to redirect spending toward artificial intelligence.

The San Jose-based company reported adjusted earnings of $1.06 per share for the quarter ended 2 May, ahead of the $1.04 consensus among analysts tracked by FactSet. Revenue rose 12 per cent from a year earlier to $15.84bn, comfortably above the $15.56bn the Street had projected. The stock, which closed the regular session up 1.8 per cent at $58.72, vaulted past $68 in after-hours trading — its sharpest single-session rally in more than two decades.

Chief executive Chuck Robbins said the company had delivered “record quarterly revenue” and described demand as “very strong, broad-based,” in remarks accompanying the results. In a statement that framed the numbers squarely around AI infrastructure spending, Robbins added: “The companies that will win in the AI era will be those with focus, urgency, and the discipline to continuously shift investment toward the areas where demand and long-term value creation are strongest.”

The real driver of the after-hours move was the AI order book. Cisco now expects $9bn in AI infrastructure orders for the full fiscal year, nearly double the $5bn target it set at the start of the period. The company has already booked $5.3bn in AI-related orders year to date, underscoring how hyperscaler capital expenditure is spilling downstream — from chipmakers and cloud providers into the networking layer that connects AI clusters at scale. Chief financial officer Mark Patterson told analysts the pipeline was “the strongest we’ve seen in the AI segment since we began tracking it separately,” adding that order velocity had accelerated meaningfully through the quarter.

Ryan Lee, senior vice-president of product and strategy at Direxion, said the AI order strength validated a broader thesis: that the hyperscaler build-out extends well beyond silicon. “Though much will likely be made about a slight decrease in headcount, the post-market move we are seeing is truly the result of hyperscaler capex spilling downstream,” Lee told Reuters. “This move validates that this capex is about more than just chips.”

The restructuring

Alongside the earnings beat, Cisco said it would cut just under 4,000 positions — less than 5 per cent of its 86,200-strong workforce — and take a pre-tax charge of roughly $1bn tied to severance, real estate consolidation, and other exit costs. The company characterised the cuts not as cost-cutting in the traditional sense but as a reallocation: freeing headcount budget to hire in AI-focused engineering, sales, and product roles where demand is growing fastest.

Robbins said the restructuring was “about creating capacity to invest” and stressed that Cisco’s overall headcount would likely remain flat over the next 12 months as AI-related hiring offsets the reductions. The move mirrors similar pivots at other enterprise technology firms — including IBM and SAP — that have trimmed legacy roles while expanding their AI workforces. In Cisco’s case, the market appeared to take the cuts as a signal of operational discipline rather than a red flag on the core business, with the stock rallying through the announcement.

What the quarter showed

Beyond the headline AI narrative, Cisco’s underlying business performed solidly across segments. Product revenue rose 11 per cent year on year, led by a 19 per cent jump in security and a 14 per cent gain in observability, while the core networking division — still the company’s largest — grew 8 per cent. Services revenue advanced 5 per cent. The breadth of the beat — with every major segment posting growth — suggested the demand environment was improving across the portfolio, not just in AI-adjacent categories.

The company also appeared to shake off concerns that had weighed on the stock earlier in the quarter, when analysts at several firms flagged potential headwinds from memory-chip pricing and supply-chain bottlenecks tied to the broader AI build-out. Patterson said those pressures had “moderated somewhat” and that Cisco’s diversified supplier base had helped insulate margins. Gross margin came in at 64.8 per cent, roughly flat year on year but ahead of the company’s own forecast.

The outlook

Cisco raised its full-year revenue guidance to a range of $63.5bn to $64.1bn, up from a prior forecast of $62.8bn to $63.6bn, and lifted its adjusted EPS outlook to between $3.98 and $4.04. For the current quarter, the company said it expected revenue of $16.3bn to $16.6bn, above the $16.1bn Street estimate. Patterson noted that the guidance incorporated the restructuring charge and still reflected “confidence in the demand signals we are seeing across the AI order pipeline.”

The raised guidance, coupled with the AI order acceleration, pushed Cisco’s shares to levels not seen since the dot-com era. Whether the rally holds through Thursday’s regular session will depend on how analysts digest the restructuring charge and whether they treat the AI order pipeline as sustainable demand or a pull-forward effect from hyperscaler pre-building. At least for one evening, the market answered with a move that rewrote two decades of Cisco’s trading history.