Cisco $CSCO ( ▲ 2.47% ) delivered better than expected second quarter results, but a softer than anticipated margin forecast for the upcoming quarter sent shares lower in premarket trading. Investors appear focused less on the headline beats and more on signs of profitability pressure ahead.
The reaction underscores how high the bar has become for companies tied to the AI infrastructure boom.
Strong Quarter on Paper
For fiscal Q2 2026, Cisco $CSCO reported non GAAP earnings per share of $1.04, topping the $1.02 analysts expected. Revenue came in at $15.35 billion, ahead of the $15.11 billion consensus estimate.
AI infrastructure orders from hyperscalers jumped to $2.1 billion, up from $1.3 billion in the prior quarter. That surge reflects ongoing demand for networking gear as data center buildouts accelerate.
Guidance Sends Mixed Signals
Revenue guidance for fiscal Q3 between $15.4 billion and $15.6 billion also exceeded expectations. Full year 2026 sales guidance was raised to a range of $61.2 billion to $61.7 billion.
The issue was margins. Cisco $CSCO projected adjusted gross margins of 65.5% to 66.5% for Q3, well below analyst expectations of 68.2%. That lighter margin outlook overshadowed the top line strength.
Riding the AI Infrastructure Wave
Cisco has benefited from the broader AI driven expansion in data centers, alongside companies like Lumentum, Corning, and Ciena that supply networking and connectivity equipment.
Even with demand holding up, the margin guidance suggests rising costs or pricing pressures could weigh on near term profitability. For now, investors are signaling that revenue beats alone are not enough without strong margin performance to match.