Cisco Systems (NASDAQ: CSCO) handed Wall Street the cleanest “AI capex boom + labor reallocation” story of the spring. After the bell on May 13, 2026, the networking giant reported record third-quarter revenue, raised its annual outlook, and — in the same release cycle — said it would cut nearly 4,000 jobs to push more spend toward AI, security, silicon, and optics. Shares surged about 15% in after-hours trading after closing the regular session at $101.87.
Q3 FY2026: record top line, double-digit EPS growth
For the quarter ended April 25, 2026, Cisco posted record revenue of $15.8 billion, up 12% year over year, with GAAP EPS of $0.85 (up 37%) and non-GAAP EPS of $1.06 (up 10%). Product revenue led the print at $12.1 billion, +17% YoY, while services slipped 1%. The networking segment alone delivered $8.8 billion in revenue, up 25%, signaling that the next-generation switching cycle is real, not just narrative.
Operating leverage was the other surprise. GAAP operating margin came in at 25.0% (up from 22.6% a year ago), and non-GAAP operating margin reached 34.2%, with operating income up 11% on a non-GAAP basis. Cisco also returned $2.9 billion to shareholders during the quarter through $1.3 billion in buybacks (16 million shares at an average price of $80.28) and a $1.7 billion dividend payment.
| Metric | Q3 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|
| Total revenue | $15.84B | $14.15B | +12% |
| Product revenue | $12.12B | $10.37B | +17% |
| Networking revenue | $8.82B | $7.05B | +25% |
| GAAP EPS | $0.85 | $0.62 | +37% |
| Non-GAAP EPS | $1.06 | $0.96 | +10% |
| Non-GAAP operating margin | 34.2% | 34.4% | -20 bps |
| Remaining performance obligations | $43.5B | $41.8B | +4% |
The AI order book is where the story really lives
The release headlines were strong, but the bigger reveal was in the order book. Cisco said total product orders rose 35% year over year in Q3, or 19% even when excluding the hyperscalers — meaning the rally is not just two or three big cloud customers. Networking product orders accelerated to more than 50% YoY, campus networking orders grew over 25%, and data center switching orders jumped more than 40%.
Most importantly, Cisco materially raised its full-year AI infrastructure outlook. The company now expects $9 billion in AI orders from hyperscalers in fiscal 2026, up from a prior $5 billion target, with $5.3 billion already taken year to date. AI revenue guidance for FY26 was raised from $3 billion to $4 billion.
That setup explains why the stock rallied so hard after hours. Investors had been treating Cisco as a slow-growth networking incumbent. The Q3 print reframes it as one of the few “picks and shovels” plays on AI buildouts that is showing up in the orders line, not just in management commentary.
Layoffs in the same release: a deliberate reallocation
The other half of the story is workforce. According to Reuters and CNBC reporting on the announcement, Cisco said it will cut nearly 4,000 jobs, or about 5% of its workforce, as part of a restructuring aimed at concentrating investment in AI, security, custom silicon (Silicon One), and optics. Cisco ended fiscal 2024 with roughly 90,400 employees — so this round is meaningfully smaller than the larger restructuring the company executed in 2024, but it lands during a clearly improving demand environment, which is the unusual part.
The framing matters. This is not a “demand is collapsing, cut costs” layoff. Cisco simultaneously raised guidance, raised AI orders, and raised AI revenue. The job cuts are best read as a deliberate move to redirect headcount toward higher-growth product lines while orders are running hot — closer to what Meta did during its “year of efficiency” than the kind of defensive layoff cycle most of legacy tech ran in 2023.
| Period | Revenue | Non-GAAP EPS | Non-GAAP operating margin |
|---|---|---|---|
| Q4 FY2026 guidance | $16.7B – $16.9B | $1.16 – $1.18 | 34% – 35% |
| FY2026 guidance | $62.8B – $63.0B | $4.27 – $4.29 | N/A |
What it means for the AI infrastructure trade
Three takeaways stand out for investors tracking the AI capex cycle.
1. The hyperscaler order book is broadening. A jump in Cisco hyperscaler AI orders from a $5 billion target to $9 billion implies that the largest cloud buyers — Microsoft, Google, Amazon, Meta and Oracle — are still adding to networking capex even as they ramp GPU spend with Nvidia and AMD. The same week, Ford rallied 13% on its own energy storage venture, and the S&P 500 closed at a record above 7,400. The “AI feeds AI” loop is now showing up in multiple corners of the tape.
2. Optical and silicon optionality is finally being priced in. Cisco called out silicon and optics as two of the four investment priorities funding the restructuring. The 800G photonics and pluggable optics market is one of the more concentrated subsegments of AI infrastructure, and Cisco has been positioning Silicon One — its custom networking silicon — as a credible alternative to merchant silicon for hyperscaler fabrics.
3. The “low-multiple AI play” thesis just got harder to ignore. Before the print, Cisco traded around 16–17x forward earnings, well below most AI-tied peers. With FY26 non-GAAP EPS guidance now at $4.27 – $4.29 and AI orders inflecting, the gap between Cisco’s multiple and a Broadcom or an Arista is going to face more scrutiny on the next leg of the rally.
Risk checks
Two yellow flags are worth holding onto. First, hyperscaler concentration: roughly half of Q3’s order growth came from hyperscalers, and that line is famously lumpy quarter to quarter. Second, services revenue is still contracting (-1% in Q3), and that is the higher-margin annuity stream investors have historically paid a premium for. Cisco’s guidance for FY26 EPS already explicitly bakes in the estimated impact of current tariff policy, which leaves less margin cushion than usual if trade tensions escalate.
Sources
- Cisco Q3 FY2026 earnings press release (PDF) — primary source for revenue, EPS, segment revenue, orders, AI guidance, dividend and buyback figures, Q4/FY26 guidance.
- Cisco Investor Relations — earnings slides and webcast.
- Reuters business desk — coverage of the 4,000 job cuts and 5% workforce reduction.
- CNBC quote page: CSCO — May 13, 2026 closing price and after-hours move; CNBC also reported the 4,000-job figure.
- Cisco Systems on Wikipedia — 90,400 employee headcount baseline (FY2024).
Disclosure: This article was produced with AI assistance and reviewed before publication. It is for informational purposes only and is not investment advice.