How Cisco Makes Money, and Why Its AI Orders Just Sent Revenue Up 24%
Cisco has been selling the boxes that move internet traffic for decades. In the three months to 24 October 2026 it grew faster than at any point in more than 15 years, and the reason is the same one driving Nvidia and CoreWeave: AI data centers.
The short answer
Cisco makes most of its money selling networking hardware and software, plus security, collaboration and support contracts. In Q1 fiscal 2027 revenue rose 24% to $18.5 billion as Networking sales jumped 43% on AI data center demand, lifting GAAP net income 59% to $4.6 billion and non-GAAP EPS to $1.40.
Cisco Q1 fiscal 2027: the key numbers
Metric | Q1 FY2027 | Q1 FY2026 | Change |
Total revenue | $18,517M | $14,883M | +24% |
Product revenue | $14,667M | $11,077M | +32% |
Services revenue | $3,850M | $3,806M | +1% |
GAAP net income | $4,552M | $2,860M | +59% |
GAAP EPS (diluted) | $1.14 | $0.72 | +58% |
Non-GAAP EPS | $1.40 | n/a | +40% |
Operating margin (GAAP / non-GAAP) | 30.2% / 37.8% | 22.6% / n/a | Record non-GAAP |
Remaining performance obligations | $46.2B | n/a | +8% |
Figures are from Cisco’s Q1 fiscal 2027 earnings release for the quarter ended 24 October 2026. Prior-year GAAP operating margin is our calculation from the release’s income statement ($3,363 million of operating income on $14,883 million of revenue).
Where does Cisco’s revenue come from?
Cisco reports two kinds of revenue. Product revenue, $14.67 billion last quarter, is the hardware and software it sells, including subscriptions. Services revenue, $3.85 billion, is mostly technical support, maintenance and advisory work attached to that equipment. Inside product revenue, Cisco breaks sales into four groups, and one dominates.
Page 21 analysis: how big each business is
Revenue line, Q1 FY2027 | Revenue | Growth | Share of total |
Networking | $11,132M | +43% | 60.1% |
Services | $3,850M | +1% | 20.8% |
Security | $2,120M | +7% | 11.4% |
Collaboration | $1,136M | +8% | 6.1% |
Observability | $279M | +2% | 1.5% |
Total | $18,517M | +24% | 100% |
Shares are our calculation from the release. The point is simple: almost all of the growth came from one line. Networking added roughly $3.3 billion of revenue compared with a year earlier (our estimate from the 43% growth rate), more than the entire Security and Collaboration businesses combined. Security grew 7%. Observability barely moved.
Why are AI data centers buying Cisco switches?
Training and running large AI models means wiring together thousands of GPUs so they can share data at very high speed. That needs switches, routers, optics and the software to run them, which is Cisco’s oldest business. Cisco’s release says it raised its expectation for AI infrastructure revenue from hyperscalers to $9 billion in fiscal 2027, more than double the total for fiscal 2026. Hyperscalers are the giant cloud operators that are building most of the new AI capacity.
It is not only the cloud giants. Cisco says demand was broad, with double-digit growth across all geographies and customer markets. By region, revenue rose 28% in the Americas, 18% in Europe, the Middle East and Africa, and 21% in Asia-Pacific, Japan and China. Chair and CEO Chuck Robbins called it “the strongest revenue and non-GAAP earnings per share growth rates for Cisco in over 15 years.”
Where does the profit come from?
The striking thing about this quarter is how much of the extra revenue fell to the bottom line. Revenue rose $3.6 billion, but total GAAP operating expenses actually fell 3% to $6.2 billion. That is operating leverage: Cisco did not have to hire a much bigger sales force or research team to sell far more switches.
There is a catch. Hardware is lower-margin than software and support, so the mix shift towards Networking pulled gross margin down. GAAP gross margin was 63.7%, against 65.5% a year earlier, and non-GAAP gross margin was 65.6% against 68.1%. Cisco made more money in dollars, at a slightly thinner margin on each dollar of sales. Even so, non-GAAP operating margin reached a record 37.8%.
What does Cisco do with all that cash?
Cisco generated $4.4 billion of operating cash flow in the quarter, up 36%, and returned $3.7 billion to shareholders: $2.0 billion of buybacks and $1.7 billion of dividends at $0.42 a share. It ended the quarter with $15.8 billion of cash and investments, against $10.4 billion of short-term and $19.4 billion of long-term debt on the balance sheet, and $6.1 billion of buyback authorization left. Full financial statements are on Cisco’s investor relations site.
The release also shows how much business is already booked. Remaining performance obligations, contracted revenue not yet recognised, were $46.2 billion, up 8%. Deferred revenue was $30.1 billion. That recurring base from support and subscriptions is what makes Cisco’s cash flow steadier than a pure hardware seller’s.
What is Cisco forecasting for the rest of fiscal 2027?
Cisco raised its full-year guidance to $74.8 billion to $75.8 billion of revenue and $5.47 to $5.53 of non-GAAP EPS. For the second quarter it expects $18.0 billion to $18.2 billion of revenue and non-GAAP EPS of $1.34 to $1.36. CFO Mark Patterson said the strength of Q1 gave the company confidence to raise both.
Against expectations, Q1 was a clear beat. CNBC reported that analysts polled by LSEG expected adjusted EPS of $1.33 on $18.1 billion of revenue. CNBC said the shares, up about 35% this year as of the 12 November close, rose in extended trading. They closed regular trading that day at $102.01.
What could go wrong for Cisco?
Three things are worth watching. First, concentration: a growing share of growth depends on a handful of hyperscalers whose spending can be lumpy, which Cisco itself flags in its forward-looking statements. Second, margins: if hardware keeps outgrowing software and services, gross margin may keep slipping. Third, the rest of the business: services grew just 1% and Observability 2%, so the non-AI parts of Cisco are growing slowly. The fiscal 2027 guidance assumes the AI build-out continues at pace.
Cisco FAQs
How does Cisco make most of its money?
By selling hardware and software, which Cisco reports as product revenue. In the quarter ended 24 October 2026 product revenue was $14.67 billion, 79% of the $18.52 billion total, and Networking alone (switches, routers, wireless and data center gear) brought in $11.13 billion. The other $3.85 billion came from services such as support and maintenance contracts.
Why is Cisco growing so fast in 2026?
Networking. Product revenue rose 32% and Networking jumped 43% in Q1 fiscal 2027 as cloud giants built AI data centers. Cisco says it now expects $9 billion of AI infrastructure revenue from hyperscalers in fiscal 2027, more than double the fiscal 2026 total. Services grew only 1%.
Is Cisco an AI stock?
Cisco does not make AI chips, but it sells the switches, routers and optics that connect AI servers inside and between data centers, and it has raised its fiscal 2027 target for hyperscaler AI infrastructure revenue to $9 billion. Most of its revenue still comes from enterprise, service provider and public sector networking, security and services. This is not investment advice.
Did Cisco beat earnings expectations?
Yes. Cisco reported non-GAAP EPS of $1.40 on revenue of $18.52 billion. CNBC, citing LSEG, said analysts expected $1.33 per share on $18.1 billion of revenue. Cisco also raised its fiscal 2027 revenue guidance to $74.8 billion to $75.8 billion.
How much does Cisco pay shareholders?
In Q1 fiscal 2027 Cisco returned $3.7 billion: $2.0 billion of share buybacks (about 18 million shares at an average $112.38) and $1.7 billion of dividends at $0.42 a share. It had $6.1 billion of buyback authorization left.
Sources
Related on Page 21
This article is for general information only and is not investment advice. Figures are from Cisco’s Q1 fiscal 2027 release and the reports linked above, as of 12 November 2026.
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