Cisco Systems stock was trading at $100.70 on Wednesday, up about 1.4%, heading into its fiscal third-quarter earnings report after market close.
Wall Street expects adjusted earnings of $1.03 per share on revenue of $15.6 billion. That compares to 96 cents per share and $14.1 billion in revenue in the same period last year.
The networking segment is the core of the story. Analysts forecast networking revenue of $8.44 billion for the quarter — a 19% jump from last year — as demand for AI-related hardware infrastructure keeps climbing.
UBS analyst David Vogt pointed to rising capital expenditure from hyperscalers like Meta as a tailwind for Cisco. He rates the stock a Buy with a $95 price target.
But there’s a catch — and it’s the same one that tripped Cisco up last time.
Memory costs have been running hot, and that’s squeezing hardware makers across the board. Last quarter, Cisco reported gross margins of 67.5%, which missed Wall Street’s estimate of 68.1%. The stock fell 12% the day after that report, on February 12.
Analysts now expect fiscal Q3 gross margins to come in at 66.2%, down from 68.6% a year ago. That’s a notable step down, and it’s happening even as Cisco has pushed through a series of price increases over the past three to six months.
Vogt summed it up plainly: “While revenue should be better, higher component costs will cap gross margins despite a series of price increases.”
Cisco is trying to manage the cost side, but the memory market isn’t cooperating yet.
The stock trades at a price-to-earnings ratio of 35.36x — a premium to historical norms. GuruFocus assigns Cisco a GF Score of 83 out of 100, with solid marks for profitability (8/10) and growth (7/10), but a weaker financial strength score of 6/10.
Insider activity has caught some attention too. Over the past three months, insiders sold approximately $4.8 million worth of stock. There were no reported insider purchases during the same period.
The stock is up 30% year-to-date and 63% over the last 12 months, reflecting strong investor appetite for AI infrastructure plays.
Analysts’ consensus EPS estimate for the quarter stands at $1.03, up from 96 cents a year ago, suggesting expectations of continued earnings growth even if margins soften.
The gross margin number will likely be the figure traders watch most closely when the report hits Wednesday evening.
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