Cisco CSCO Drops 7% on Gross Margin Fears Despite Revenue Growth

**Implied Volatility / Movement:** Cisco Systems (NASDAQ:CSCO) experienced a 7% decline in its stock price, closing at $115 on Thursday, August 13, 2026. This drop occurred despite the company reporting fourth-quarter fiscal 2026 results that surpassed analyst expectations for both earnings per share and revenue. The primary driver for the stock's downturn was a significant compression in gross margins, which fell to 66.3% from 68.4% in the prior year. Non-GAAP product gross margin specifically decreased to 64.8% from 67.5%.

Management provided guidance for the first quarter of fiscal year 2027, projecting gross margins between 65% and 66%, indicating a continued trend of compression. This margin pressure is attributed to the scaling of lower-margin AI hardware within the product mix. For the full fiscal year 2027, Cisco anticipates revenue between $72.2 billion and $73.4 billion, with AI infrastructure orders contributing an estimated $7.5 billion.

Despite the margin concerns, the company announced robust AI infrastructure orders totaling $4 billion in the quarter and $9.3 billion for fiscal year 2026. Several firms maintained or raised their price targets on $CSCO+WL, acknowledging the company's strong revenue growth of 18% year-over-year and an EPS beat. For instance, Rosenblatt increased its target to $165, and Wells Fargo set theirs at $150.