Cisco lifts annual revenue forecast on strong AI networking demand

Cisco exceeded Wall Street's predictions for its first-quarter earnings and has now increased its annual revenue forecast, attributing its success to the growing demand for AI networking infrastructure. The company announced its upgraded revenue forecast on November 12, predicting annual revenue between US$74.8 billion and US$75.8 billion, an improvement from its previous projection of US$72.2 billion to US$73.4 billion.

CEO Chuck Robbins declared, "We are in the very early stages of a multi-year networking supercycle." Cisco has invested heavily in AI, expanding its focus from AI processors to switches and routers needed to connect massive data-center systems. The company raised its AI infrastructure revenue forecast for hyperscalers from US$7.5 billion to US$9 billion, with the segment generating US$4 billion in revenue a year ago.

Despite concerns about a potential slowdown in data-center expansion due to the Democratic victory in the US midterms and higher borrowing costs, Cisco reported first-quarter revenue of US$18.5 billion, surpassing analysts' average estimate of US$18.14 billion. The tech giant is also developing software tools to help businesses create AI agents to safeguard their IT infrastructure from cybersecurity threats.

Cisco's shares remained flat in volatile trading, but have gained around 32% so far in 2023. The company's gross margin has been a concern for investors due to memory chip shortages, which have increased component costs for hardware makers. However, Bob O'Donnell, president and chief analyst at TECHnalysis Research, reassured that a minor dip in gross margin is not a major concern given the higher costs of memory and other components.