Cisco is in a hurry to turn this wave of AI spending into money from its networking equipment. This has led them to increase their predictions for sales and to move funds to areas where they expect growth, while reducing the number of employees. The company, based in San Jose, California, says nearly 4,000 people will lose their jobs as resources are shifted around. After the announcement, the price of the company’s stock went up 15% in after-hours trading, because of the bigger orders from hyperscalers.
AI capex is shifting, and Cisco wants in
The company is completely updating its products and releasing new ones for data centres that are using AI. Ryan Lee from Direxion said this fits with what he’s seeing; hyperscalers are now spending money all down the line, and it’s not just about the computer chips.
CEO Chuck Robbins described this change in direction as a test of how well the company can be focused and fast. He said that in the age of AI, the companies that do best will be those that concentrate on the areas with the highest demand and the greatest potential for long-term value, and are willing to constantly move their investments to those areas.
Restructuring to fund bigger AI bets
Cisco will be cutting fewer than 4,000 jobs in the final three months of the year, which is less than 5% of its 86,200 employees (as of July 26th of last year).
This restructuring will likely cost up to $1 billion. Around $450 million of that will be recorded in the final three months of the year, with the remaining $550 million being recorded in 2027. Cisco says they are strategically investing in the actual computer silicon, optics (for fast data transmission), security and having employees use AI throughout the company.
Cisco outlined the near-term actions driving this shift:
– Fewer than 4,000 roles cut in the fourth quarter
– Less than 5% of the workforce affected
– Up to $1 billion in restructuring costs
– About $450 million recognized in the fourth quarter
– Remaining charges expected in fiscal 2027
– Investment focus: silicon, optics, security, AI adoption
Orders surge, guidance moves higher
So far this year, orders for AI infrastructure from hyperscalers have been worth $5.3 billion. Cisco now expects to receive $9 billion in orders for the entire year, much higher than the previous prediction of $5 billion. This shows that momentum is increasing, and it’s not only about the ‘accelerators’ (the specialized processors for AI), but also about very high-speed networking.
In the third quarter (compared to the same time last year), orders for networking products grew by more than 150%, and orders for data centre switches were up more than 40%. The company’s revenue for the quarter that ended on April 25th was $15.84 billion, which was more than the $15.56 billion analysts had expected.
Cisco now expects to make between $62.8 billion and $63 billion in revenue for 2026. Previously, they had predicted between $61.2 billion and $61.7 billion. Mark Patterson, Cisco’s finance chief, said during a discussion after the earnings report that they believe they can reasonably expect at least $6 billion in revenue from AI hyperscalers in 2027.
Positioning for the next phase of AI infrastructure
The company is doing well because spending is expanding to include the high-speed networks needed to connect the large systems in data centres, as well as the AI processors themselves. This change perfectly suits Cisco’s strengths in switches and optics, and it shows their decision to put money into platforms linked to AI was a good one.
The increase in Cisco’s stock price shows this is what people believe. The stock is up 32% this year, and the price went up even more after trading hours because of the higher orders and improved predictions.
What to watch next
Cisco is updating its range of products to meet the demands of data centres which are heavily using AI. Now, it’s important for them to quickly turn their investments in computer silicon, optics and security into actual installations, and to see if the increasing demand from hyperscalers continues as they expect it to in 2027.
