Cisco Systems (CSCO) saw its stock surge as much as 22% in premarket trading on Thursday after the networking giant raised its sales forecast and announced a restructuring plan centered on artificial intelligence. The company reported fiscal third-quarter revenue of $15.8 billion, a 12% increase from the same period last year, and lifted its full-year outlook.
AI Orders Drive Growth
Cisco disclosed that it has booked $5.3 billion in AI infrastructure orders from hyperscale cloud providers so far in fiscal 2026, boosting its full-year order target to $9 billion from a previous $5 billion. Expected AI revenue for fiscal 2026 is now set at $4 billion, up from an earlier $3 billion forecast. The company also noted that data-center switching orders climbed more than 40%.
This shift is significant for investors seeking evidence that AI-driven spending is expanding beyond the chip sector. Cisco, known for its switches, routers, and optical equipment that power data center networks, increasingly relies on hyperscalers as key customers.
Financial Performance
For the fiscal third quarter ended April 25, 2026, Cisco reported net income of $3.4 billion, or 85 cents per share, under generally accepted accounting principles (GAAP). Adjusted profit, which excludes certain expenses, was $4.2 billion, or $1.06 per share. The company lifted its full-year revenue forecast to a range of $62.8 billion to $63.0 billion.
For the current fiscal fourth quarter, Cisco expects revenue between $16.7 billion and $16.9 billion, topping the $15.8 billion analysts had anticipated, according to data from Bloomberg.
Restructuring and Job Cuts
Chair and Chief Executive Chuck Robbins announced plans to trim the workforce by fewer than 4,000 positions in the fiscal fourth quarter, representing less than 5% of staff. The company will begin notifying employees on May 14, with cuts extending globally. Robbins described the move as "hard decisions" necessary to continue investing in silicon, optics, security, and AI initiatives.
The restructuring is expected to cost up to $1 billion before taxes, primarily from severance and related expenses. Approximately $450 million will be recorded in the fourth quarter, with the remainder hitting in fiscal 2027.
Market Reaction and Analyst Views
Direxion's senior vice president of product and strategy, Ryan Lee, said the share movement shows that AI capital investment goes "about more than just chips." On Cisco's post-earnings call, CFO Mark Patterson called it "reasonable" to anticipate at least $6 billion in revenue from the AI hyperscale segment by fiscal 2027.
Prediction markets had skewed bullish ahead of the report. Polymarket traders gave Cisco a 97.1% probability of beating the $1.04 adjusted EPS consensus, with another contract showing a 97% chance of achieving at least $1 billion in Q3 hyperscaler AI orders.
Competitive Landscape
Traders also kept an eye on rivals Arista Networks (ANET) and Hewlett Packard Enterprise (HPE), often mentioned in the context of AI networking. Melius Research attributed Cisco's stock jump to its custom silicon and optics efforts, suggesting the networking tailwind could persist as AI inference ramps up data-center traffic. Cisco currently trades at 22.77 times forward earnings, compared to Arista's 35.64 and HPE's 12.37.
Challenges Ahead
Despite the positive news, some challenges remain. Gross margin slipped to 63.6% from 65.6% a year ago on a GAAP basis, and security revenue was flat. Cisco also noted that its margin and profit outlook incorporates the estimated impact from tariffs under current trade policy. The company cautioned in its SEC filing that outcomes on the restructuring's scale, timing, and benefits could differ from current expectations.
Moving forward, Cisco faces the task of converting its AI orders into top-line results, protecting margins from erosion, and framing the layoffs as a reallocation of resources rather than a last-minute fix.
