Cisco Boasts Upbeat Sales Outlook Driven by AI Infrastructure Spending

Cisco Systems Inc. (CSCO) surged in after-hours trading following its release of an optimistic sales forecast for the current quarter. The company attributed this growth to increased corporate spending on computing infrastructure to leverage AI technology.

Q2 Performance

For the quarter ending in April, Cisco anticipates revenue between $13.9 billion and $14.1 billion, exceeding analysts' expectations. The networking giant also raised its fiscal 2025 target by approximately $1 billion to more than $56 billion, surpassing the estimated $55.97 billion average.

AI-Fueled Growth

Corporate clients are ramping up investments in networking systems to facilitate the development and utilization of artificial intelligence. This positive outlook suggests that spending by these customers is offsetting softer orders from the federal government, which has paused certain projects post-administration change.

Strategic Shifts

"As AI becomes more pervasive, we are well-positioned to assist our customers in scaling their network infrastructure, meeting their data capacity needs, and adopting best-in-class AI security," stated CEO Chuck Robbins.

Cisco's shift towards software and services, particularly evident in its acquisition of Splunk, has further complemented its core products of switches and routers.

Product Orders

Product orders surged by 29% year-over-year in the fiscal second quarter ending January 25th. Excluding Splunk's contribution, new orders increased by 11%.

Executive Departure

Cisco announced that Gary Steele, President of its go-to-market division, is departing to take on a CEO role at an unnamed company.

Government Slowdown

While public sector demand remains below previous levels, the decline is predominantly limited to specific segments. Cisco's US government business primarily stems from the Department of Defense, with a smaller share from other agencies. CFO Scott Herren noted that these civilian divisions have reduced their orders.

Tariff Concerns

Executives addressed questions regarding potential tariffs on goods imported from Canada, Mexico, and China. Cisco downplayed concerns, citing lessons learned from pandemic-induced supply chain disruptions. The company has since diversified its supply chain and expanded contract manufacturing facilities, enabling it to mitigate tariffs.

Recurring Revenue

Sales increased by 9% to $14 billion in Q2, slightly above the $13.9 billion estimate. Recurring revenue from cloud-based services, such as security and remote management tools, has significantly contributed to this growth.

Stock Repurchase Authorization

Cisco's board approved an additional $15 billion for stock repurchases, bringing the total budget to $17 billion.