- Cisco stock broke past $100 on Wednesday after strong earnings and strong pre-market gains signal an extended rally could be incoming
- The company also announced a $1 billion restructuring program, underpinned by slashing 4,000 jobs
- While 12% YoY revenue growth and $9 billion AI infrastructure order guidance indicate strong outlook, hyperscaler appetite and high valuation carry risks
After a steady climb that began in late March, Cisco pulled off a stunning double play this week. It broke through the psychological $100 resistance level yesterday and then exploded by over 15% in today’s pre-market session.
As of this writing, the stock is trading near $118, hitting levels that many analysts thought were years away. What factors contributed to this significant shift in performance?
Why is Cisco Stock Rallying?
The primary driver emerged clearly on May 13 after the market close, when Cisco reported fiscal Q3 2026 results that exceeded expectations. Revenue reached a record $15.8 billion, representing a 12% year-over-year increase. Also, their adjusted earnings per share came in at $1.06, just a little bit higher than the $1.04 consensus figure analysts had forecast.
Particularly noteworthy were surging AI-related orders, with the company highlighting strong demand for networking equipment essential to AI data centers. Because of all this, Cisco bumped up their sales forecast for the whole year to somewhere between $62.8 and $63.0 billion.
They’re also looking at around $9 billion in AI infrastructure orders for 2026. It’s clear that orders for networking products went up significantly, highlighting this big move towards more powerful infrastructure.
Cisco also announced plans to cut nearly 4,000 jobs, equivalent to less than 5% of its workforce, beginning today, May 14. CEO Chuck Robbins framed this as deliberate capital reallocation, expected to cost $1 billion.
The goal is to move investments towards AI and other promising segments like silicon, optics, and security. It seems the market views these cuts as a sign of the company being disciplined in its operations, rather than facing difficulties.
Is the Market Overreacting?
The swift post-earnings price upgrades from major banks is also a vote of confidence. Wells Fargo raised its target to $130, Piper Sandler went to $132, JPMorgan moved to $120, Barclays to $121, and Citi to $112. These confirm the earnings were genuinely transformative rather than merely acceptable.
However, despite the current enthusiasm, certain cautionary signals warrant consideration. Cisco’s price-to-earnings (P/E) ratio has climbed to approximately 36x, a valuation typically considered high for a networking enterprise. The market is pricing in near-flawless execution on AI delivery from here, which is a high bar. If hyperscale orders results in a flat Q4, the stock could see a sharp mean reversion or correction.
Furthermore, not all aspects of the earnings report were entirely favorable. Non-GAAP gross margin experienced a decline of 260 basis points to 66%, with management attributing this to ongoing supply chain challenges and escalating memory costs exerting pressure on margins. Services revenue also saw a 1% dip, linked to specific contract timing issues.
Strong Q3 FY2026 earnings beat, record revenue of $15.8B, surging AI orders, and raised full-year guidance fueled the post-earnings surge.
Gross margin compression and supply chain cost pressures could disappoint if AI revenue fails to materialise as quickly as expected.
Cisco is eliminating nearly 4,000 positions to pivot its spending toward artificial intelligence, silicon, and cybersecurity growth opportunities for the next decade.
