Cisco earnings were strong: why is the stock sliding then?

What happened

Cisco reported revenue of $18.5 billion and earnings of $1.40 per share, up 24% and 40% respectively from a year earlier and above expectations. Its stock nevertheless opened lower. Adjusted gross margin, the share of sales left after direct costs, fell to 65.6% from 68.1%.

Confirmed

Global impact / market context

The article links the lower gross margin to equipment growing faster than software and services, plus high memory costs. If that mix persists, Cisco could keep selling more while earning less gross profit per sales dollar, potentially weakening the payoff from its AI expansion.

Analyst inference

Strong revenue and earnings did not remove investor concern about how durable Cisco’s profitability will be. Adjusted operating expenses rose only 2%, supporting a record 37.8% adjusted operating margin, but the article says cost discipline may become harder to sustain if pressures continue.

Analyst inference

What to watch

1. Watch whether Cisco’s adjusted gross margin stabilizes or falls further; this would show whether equipment mix and memory costs continue to reduce gross profit from sales. Analyst inference
2. Track whether software and services regain a larger share of sales, since the article identifies faster hardware growth as one cause of the margin decline. Analyst inference
3. Look for updates on operating expenses and hiring, as continued cost discipline could cushion weaker gross profit, while rising costs could erode that protection. Analyst inference

Evidence

• invezz.com