Chuck Robbins Says AI Is Fueling a "Networking Supercycle." Cisco's Guide Puts a $7.5 Billion Number on It.

Cisco CEO Chuck Robbins highlighted AI as the driving force behind a growing "Networking Supercycle" during the company's fiscal fourth-quarter earnings call. In the past two years, AI infrastructure orders from hyperscalers and other customers have surged, contributing to double-digit growth in networking product orders. Management anticipates that AI infrastructure revenue will reach $7.5 billion in fiscal 2027, making up around 10% of the company's total revenue.

However, the shift to hardware-based infrastructure has resulted in lower gross margins, with adjusted gross margin falling by 210 basis points in the fourth quarter compared to the previous year. The company expects gross margins to remain below 66% in fiscal 2027, reflecting the higher costs associated with the hardware mix. Despite the margin pressure, Cisco's non-GAAP earnings per share grew by 23% in the fourth quarter and 14% for the full year.

The stock is trading at around 22 times the midpoint of the earnings guidance, indicating that investors are factoring in the potential erosion of gross margins.