Cisco (CSCO) Q4 2025: Web-Scale Orders Up 49%, AI Infrastructure Fuels Networking Surge
Web-scale customer order growth of 49% drove Cisco’s Q4 outperformance, underscoring AI infrastructure as the new demand engine. Momentum in AI networking, refreshed campus products, and security innovation is fueling a multi-year upgrade cycle, with management signaling confidence in durable growth into FY26. Investors should watch for enterprise AI adoption, sovereign cloud ramp, and the pace of security portfolio transition as key levers for Cisco’s next phase.
Summary
- AI-Driven Demand Surge: Web-scale AI infrastructure orders more than doubled, catalyzing core networking growth.
- Security Portfolio Transition: New and refreshed security products outpaced legacy decline, but overall growth remains mixed.
- Multi-Year Upgrade Cycle: Campus and enterprise refresh, plus sovereign AI, position Cisco for sustained opportunity in FY26.
Performance Analysis
Cisco’s Q4 results reflected a decisive shift toward AI-driven infrastructure spending, with total product orders up 7% year-over-year. The standout was web-scale and cloud customer orders, which surged 49%, marking the fourth consecutive quarter of triple-digit growth among top hyperscale clients. Networking revenue rose 12%, led by double-digit gains in internet infrastructure and enterprise routing, offsetting declines in servers. Security grew 9%, primarily from Splunk and SASE, while collaboration and observability posted modest gains.
Annualized recurring revenue (ARR) and remaining performance obligations (RPO) continued to build, reinforcing Cisco’s shift toward a more predictable, software-centric model. Subscription revenue now accounts for 54% of total revenue, and total software revenue increased 5%. Gross margin improvements, aided by favorable tariff impacts and ongoing productivity initiatives, contributed to operating leverage, with EPS growth outpacing revenue. Capital returns remained aggressive, with 94% of free cash flow returned to shareholders.
- Web-Scale Acceleration: Four of the top six web-scale customers grew orders triple digits, with two placing orders over $1 billion each in FY25.
- Networking Product Mix: Double-digit growth in switching, enterprise routing, and industrial IoT, driven by new CAT 9K smart switches and Silicon One adoption.
- Security Mixed Signals: New products (SASE, XDR, HyperShield) saw >20% order growth, offset by legacy product drag and weak U.S. federal demand.
Geographically, EMEA accelerated to 10% order growth, with strength in the UK, Germany, and Saudi Arabia, while public sector lagged due to tough federal comps. Service revenues flattened, reflecting the tail end of prior backlog implementation, but are expected to rebound as product growth feeds through.
Executive Commentary
"We had a strong close to fiscal 25 delivering revenue and gross margin at the high end of our guidance ranges for the fourth quarter. Continued operating leverage across our business produced strong profitability with earnings per share above the high end of our guidance. In addition, We generated solid growth in annualized recurring revenue, remaining performance obligations, and subscription revenue, which provides a strong foundation for our future performance."
Chuck Robbins, Chair and Chief Executive Officer
"For the quarter, total revenue was $14.7 billion, up 8 percent year over year. Non-GAAP net income was $4 billion, up 12 percent. And non-GAAP earnings per share was 99 cents, up 14 percent, demonstrating good operating leverage with EPS growth outpacing revenue growth."
Mark Robinson, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. AI Infrastructure as Core Growth Engine
AI infrastructure demand is now Cisco’s primary growth lever, with web-scale and cloud orders exceeding $2 billion for FY25—more than double the company’s original target. The majority of these orders are for systems powered by Silicon One, Cisco’s custom networking silicon designed for high-performance AI clusters. The company’s partnership with NVIDIA, spectrum X integration, and new sovereign cloud deals (notably in the Middle East) are expanding Cisco’s relevance in both hyperscale and emerging AI markets.
2. Multi-Year Campus and Enterprise Refresh
The launch of new CAT 9K smart switches and refreshed routers signals the start of a multi-year upgrade cycle across Cisco’s massive installed base. The CAT 9K, now in its eighth year, is expected to drive significant replacement demand as customers prepare networks for AI workloads. Wi-Fi 7 and industrial IoT products are also gaining traction, especially as onshoring and infrastructure investments accelerate in the U.S. and abroad.
3. Security Transition and Splunk Integration
Cisco’s security business is at an inflection point, with new and refreshed offerings (SASE, XDR, HyperShield, AI Defense) growing over 20%, while legacy products continue to contract. The Splunk acquisition is beginning to deliver, evidenced by 14% growth in new Splunk logos and cross-selling momentum. However, overall security growth remains below long-term targets, and execution on the portfolio transition will be critical to meeting investor expectations.
4. Subscription and Software Model Evolution
More than half of Cisco’s revenue is now recurring, as the company pushes further into software, cloud management, and AI-enabled services. ARR and RPO growth support greater predictability, while new agentic operations (AI Canvas, deep network model LLM) aim to drive operational simplicity and customer stickiness.
5. Capital Allocation and Shareholder Returns
Capital returns remain a core pillar, with $12.4 billion returned in FY25 (94% of free cash flow). The dividend was increased for the fourteenth consecutive year, and the company maintains a $14.2 billion repurchase authorization, signaling ongoing commitment to shareholder value even as strategic investments continue.
Key Considerations
Cisco’s Q4 performance and FY26 outlook reflect a business at the intersection of secular AI tailwinds, portfolio transition, and disciplined capital allocation. The company’s ability to sustain growth will depend on execution in several key areas:
Key Considerations:
- AI-Driven Networking Demand: Sustained web-scale and cloud investment is critical; watch for enterprise AI adoption and sovereign cloud ramp as new catalysts.
- Security Portfolio Execution: Growth in new offerings must offset legacy drag; Splunk integration and cross-sell are early positives but execution risk remains.
- Campus Refresh Cycle: The scale and timing of CAT 9K and related product upgrades will determine the magnitude of the multi-year upgrade opportunity.
- Tariff and Macro Complexity: Management assumes current tariff structures persist, but global trade tensions and supply chain volatility remain wildcards for margins.
- Capital Deployment Discipline: Ongoing balance between funding growth, supporting the dividend, and opportunistic buybacks will shape long-term returns.
Risks
Key risks include the potential for AI infrastructure spending to moderate if hyperscale demand normalizes, slower-than-expected adoption of new security and campus products, and lingering macro or geopolitical volatility (notably tariffs and U.S. federal demand). Execution on the security portfolio transition and Splunk integration remains a watchpoint, as does the risk of order pull-forwards or uneven enterprise refresh pacing.
Forward Outlook
For Q1 FY26, Cisco guided to:
- Revenue of $14.65 billion to $14.85 billion
- Non-GAAP gross margin of 67.5% to 68.5%
- Non-GAAP operating margin of 33% to 34%
- EPS of $0.97 to $0.99
For full-year FY26, management guided:
- Revenue of $59 billion to $60 billion
- EPS of $4.00 to $4.06
Management highlighted several factors that frame the outlook:
- AI and sovereign cloud opportunity expected to ramp in the second half of FY26
- Campus refresh cycle still in early stages, with incremental demand expected to build
- Security portfolio transition and Splunk cross-sell seen as growth levers, but legacy drag persists
Takeaways
Cisco’s Q4 showed a business successfully pivoting to AI-driven demand, with web-scale and networking strength offsetting legacy headwinds in security and public sector. The AI infrastructure opportunity is real and scaling, but execution on security and campus refresh will determine if Cisco can sustain above-market growth.
- AI Infrastructure Now Core to Growth: Web-scale and cloud orders are the new engine, with enterprise and sovereign AI poised to follow as next-phase catalysts.
- Security at a Turning Point: New offerings are gaining traction, but legacy drag and federal weakness require sustained execution to reach long-term targets.
- Watch Enterprise AI and Campus Refresh: The pace of adoption and upgrade cycles will shape Cisco’s ability to deliver on its FY26 ambitions and multi-year narrative.
Conclusion
Q4 marked a decisive pivot for Cisco, with AI infrastructure, networking innovation, and capital discipline driving both near-term outperformance and long-term positioning. The company’s ability to convert pipeline into revenue, accelerate security transition, and capitalize on sovereign and enterprise AI will define its next chapter.
Industry Read-Through
Cisco’s results confirm that AI infrastructure is now the primary growth driver across the networking and data center ecosystem, with web-scale and cloud customers investing at unprecedented rates. The campus refresh and enterprise AI adoption cycles are still early, suggesting multi-year opportunity for networking, silicon, and security vendors. Security remains a challenging but essential battleground, with portfolio modernization and identity integration increasingly critical as agentic AI and zero trust architectures proliferate. Tariff and supply chain dynamics remain a shared risk for global tech suppliers, but Cisco’s scale and supply chain agility offer a relative advantage. Investors across IT infrastructure should monitor the pace of AI adoption, sovereign cloud buildouts, and the transition to recurring, software-driven models as leading indicators for sector performance.