Key Points
- Record Q3 revenue of $15.8 billion, up 12% YoY, with AI infrastructure orders from hyperscalers hitting $1.9B in a single quarter, up from $600M a year ago.
- Non-GAAP EPS of $1.06, up 10% YoY, a clean beat against expectations.
- Gross margin fell 260 basis points to 66% from higher memory costs and mix, and a $1 billion restructuring charge is coming over Q4 and fiscal 2027.
Cisco reported Q3 fiscal 2026 on May 13 after the close. Record revenue. Hyperscaler AI orders exploding. Campus networking at records. The whole AI infrastructure wave is running directly through Cisco's networking and optics business and it shows up in the numbers in a real way this quarter. The restructuring announcement buried at the end of the call is the part worth reading carefully.
What they reported
Cisco, the networking infrastructure company whose switches, routers, optics, and security software form the plumbing of most enterprise and hyperscaler data centers, posted record Q3 fiscal 2026 revenue of $15.8 billion, up 12% year over year, with AI infrastructure orders from hyperscalers reaching $1.9 billion in the quarter (up from $600M a year ago), non-GAAP EPS of $1.06, and a restructuring plan of up to $1 billion in charges to refocus on silicon, optics, security, and AI.
Beat or miss
Beat. Q3 revenue of $15.8 billion exceeded the top end of guidance and consensus expectations around $15.5 billion, with non-GAAP EPS of $1.06 beating consensus of approximately $0.97, and Q4 guidance of $16.7 billion to $16.9 billion implying continued double-digit growth that came in well above the Street's ~$16.0 billion expectation.
What the CEO actually said about the future
Chuck Robbins spent the call talking about hyperscalers and he had every right to: $5.3 billion in AI infrastructure orders year-to-date, already past the full-year expectation, with the top five hyperscalers each up triple digits. That's not a trend. That's a structural shift in how data centers get built, and Cisco is the networking layer that all of it runs through. Acacia, the optical interconnect business they acquired years ago, is tracking above 200% growth for the fiscal year. Campus networking at records with WiFi 7 representing half the wireless mix. Industrial IoT strongest quarter ever for eight consecutive periods.
So why the $1 billion restructuring? Because even with all that growth, Robbins is reallocating the business toward where the next wave of spending goes: silicon, optics, security, AI. Which means some legacy Cisco businesses are getting defunded. The old security portfolio is still declining and offsetting the new products, though less so than in H1. Splunk's cloud transition is creating a near-term revenue drag as on-premise contracts shift to cloud subscriptions. And gross margins dropped 260 basis points from memory cost inflation and unfavorable product mix, since the AI infrastructure orders carry lower margins than the legacy enterprise networking business. Fast revenue growth with margin compression is a trade-off management is clearly comfortable making right now. Whether investors stay comfortable with it depends on how quickly the restructuring improves the product mix economics.
What it means for the stock in plain terms
Cisco is a different company than it was three years ago and the market is slowly repricing that.
For years CSCO was a slow-growth value stock trading at a low multiple because the core switching and routing business was mature and declining. The AI infrastructure wave has changed the growth equation: $1.9 billion in AI orders in a single quarter is not a mature-business number. Institutional money is actively rerating Cisco from "legacy networking" to "AI infrastructure enabler," which is why the stock has moved. The restructuring accelerates that pivot by forcing resource reallocation. The risks: gross margin compression from memory costs and product mix persists into Q4, the $450 million in restructuring charges hitting next quarter will look ugly in GAAP results, and Splunk's revenue transition creates a near-term headwind. But the order book, $43.5 billion in remaining performance obligations, is the most important data point. That backlog doesn't lie.
The one thing beginners should take away
Record revenue and a restructuring announcement in the same quarter isn't contradictory, it's strategic. When a company is growing fast in new areas while legacy products decline, smart management reallocates resources before the decline catches up to the growth. The restructuring charge will look bad in the GAAP earnings next quarter. That's not the same thing as the business being broken, it's the cost of becoming something different. Read what the charge is for before assuming it's bad news.