Key Points
Cisco (CSCO) posted record revenue of $18.5 billion, up 24%, and adjusted earnings of $1.40 a share, up 40%. That is its fastest growth in more than 15 years. The stock still tumbled 6.2% on Friday to $95.64.
Cisco raised its fiscal 2027 revenue forecast to $74.8 billion to $75.8 billion, up from $72.2 billion to $73.4 billion, and lifted its AI infrastructure revenue target from hyperscalers to $9 billion.
Investors focused on two numbers instead: product orders grew 21%, down from 35% growth the quarter before, and adjusted gross margin fell 2.5 points to 65.6%.
The chip rotation trade reversed. AMD tumbled 8.8% to $534.06, while Modine (MOD) soared 27.9% on a report that Samsung is in takeover talks.
At 4:01 p.m. Friday, the Nasdaq was down 0.9%, the S&P 500 down 0.4% and the Dow up 0.1%.
Cisco just did almost everything a company can do on earnings night.
It beat on revenue and profit, set records, raised its outlook and told Wall Street its AI business with the giant cloud companies will more than double this year.
And on Friday, the stock tumbled 6.2%.
If you own any AI picks-and-shovels stocks, pay attention to why.
The Best Quarter in 15 Years
Here is what Cisco reported after the bell on Thursday.
Revenue for its fiscal first quarter came in at $18.5 billion, up 24% from a year ago. Wall Street expected about $18.1 billion. Adjusted earnings were $1.40 a share against an estimate of $1.33. Cisco said those are its strongest top- and bottom-line growth rates in more than 15 years.
The engine was networking. That business brought in $11.1 billion, up 43%, driven by triple-digit growth in AI infrastructure.
Then it raised the bar. Cisco now expects fiscal 2027 revenue of $74.8 billion to $75.8 billion and adjusted earnings of $5.47 to $5.53 a share. Its prior ranges were $72.2 billion to $73.4 billion and $5.05 to $5.11. It lifted its target for AI infrastructure revenue from hyperscalers to $9 billion this fiscal year, up from $7.5 billion, and more than double what it did last year.
For the current quarter, Cisco guided to $18.0 billion to $18.2 billion in revenue, above the roughly $17.88 billion analysts had penciled in.
On paper, that is a home run.
So Why Did the Stock Fall?
Three reasons kept coming up on Friday.
First, orders are slowing. Total product orders grew 21% from a year ago. Last quarter, they grew 35%. Rosenblatt Securities noted that order growth slowed sequentially in every customer market. Orders tell you what is coming next.
Second, margins are getting squeezed. Adjusted gross margin fell 2.5 percentage points to 65.6%. Product gross margin dropped 3.5 points to 63.7%. Cisco blamed a heavier mix of hardware and higher memory chip costs. The same memory shortage that is making chipmakers rich is making everyone who buys memory pay more.
Third, Cisco is changing what it tells investors. The company said it will move away from disclosing hyperscaler AI orders and focus on revenue instead, because order timing is lumpy. When growth is slowing, less visibility is the last thing investors want.
Several Wall Street firms cut their price targets on Friday, citing slower orders and lower valuations across the sector. Piper Sandler said the current-quarter forecast implies hardware revenue has peaked and will decline from here.
There was also a lot of good news already in the price. Cisco shares were up about 35% this year through Thursday's close at $102.01, while the Nasdaq had gained about 9%. After a run like that, "great" is the expectation.
It is the same lesson investors learned a day earlier, when Nebius grew revenue 571% and still got sold.
The Rotation Trade Snapped Back
Cisco was not alone.
On Thursday, after Jensen Huang resigned as Nvidia's CEO, traders piled into Nvidia's rivals. AMD had gained nearly 45% over five sessions through Thursday. On Friday that trade reversed. AMD tumbled 8.8% to $534.06, and Marvell (MRVL) fell 4.7%. Nvidia fell 2.0% to $162.85.
Chip equipment makers were hit, too. Applied Materials (AMAT) fell 2.7% to $370.50, a day after reporting record revenue and a forecast above estimates.
For investors still weighing how to position around Nvidia's turmoil, Friday was a reminder that the market can punish rivals and suppliers in the same breath.
The big exception was Modine. The data center cooling company soared 27.9% to $135.66 after Bloomberg reported that Samsung Electronics is in talks to buy it. No deal has been announced, and talks could still fall apart.
Inflation and Yields Added Pressure
The macro backdrop didn't help. The October producer price index rose 0.3%, a bit softer than the 0.4% economists expected. But wholesale prices were up 6.5% from a year earlier, the biggest annual jump since November 2022.
The 10-year Treasury yield touched 5.17% during the session. Futures traders now see a Federal Reserve rate hike at the December 9 meeting as a near certainty, according to CME FedWatch.
At 4:01 p.m. Friday, the Nasdaq was down 0.9% at 25,136.27, the S&P 500 was down 0.4% at 7,561.68 and the Dow was up 0.1%, or 50 points higher, at 52,347.55.
For the week, based on those 4:01 p.m. levels, the Nasdaq was up 2.3%, the S&P 500 up 2.5% and the Dow up 2.1%. That would be the S&P 500's first weekly gain since early October.
What Lands Next
The calendar gets busier from here. Retail sales for October arrive Tuesday morning, and the minutes from the Fed's October meeting come out Wednesday afternoon.
The biggest test is Nvidia's earnings on Tuesday after the close. It will be its first report since Huang resigned. Home Depot reports Tuesday, Target and Lowe's on Wednesday, and Walmart on Thursday.
In this market, a record quarter isn't enough. Investors want to know the next one will be bigger.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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