CSCO · Q3 2026 Earnings

Bullish

Cisco

Reported May 13, 2026

30-second summary

Q3 revenue grew 12% YoY to $15.8B and non-GAAP EPS hit $1.06, both crushing the prior-quarter guide (revenue by ~$1B, EPS by $0.07–$0.09), while product orders accelerated to +35% YoY (+19% ex-hyperscaler). Management raised FY26 revenue guidance by $2.8–4.0B to $62.8–63.0B and lifted the hyperscaler AI infrastructure order target from ~$5B to ~$9B — already $5.3B booked YTD with a quarter to go. The story has fully crystallized: Silicon One design wins are translating into a non-linear order build, and management explicitly framed FY27 hyperscaler AI revenue at "at least $6B" — anchoring the next year before FY26 even closes.

Headline numbers

EPS

Q3 FY2026

$1.06

Revenue

Q3 FY2026

$15.80B

+12.0% YoY

Gross margin

Q3 FY2026

66.0%

Operating margin

Q3 FY2026

34.2%

Key financials

Q3 FY2026

Metric	Q3 FY2026	Q3 FY2025	YoY	Q1 FY2026	QoQ
Revenue	$15.80B	$14.10B	+12.1%	$14.90B	+6.0%
EPS	$1.06	$0.96	+10.4%	$1.00	+6.0%
Gross margin	66.0%	65.6%	+40bps	65.5%	+50bps
Operating margin	34.2%	22.6%	+1160bps	22.6%	+1160bps

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q3 FY2026	$14.65 billion to $14.85 billion	$15.8 billion	+$0.95 billion to $1.15 billion above guide	Beat
Non-GAAP EPS	Q3 FY2026	$0.97 to $0.99	$1.06	+$0.07 to $0.09 above guide	Beat
GAAP EPS	Q3 FY2026	—	$0.85	—	Beat
Non-GAAP Gross Margin	Q3 FY2026	67.5% to 68.5%	66.0%	-150 to -250 bps below guide	Beat
Non-GAAP Operating Margin	Q3 FY2026	33% to 34%	34.2%	+20 to +120 bps above guide	Beat

New guidance

Metric	Period	Guide	YoY
GAAP EPS	FY2026	$3.16 to $3.21	—
Revenue	Q4 FY2026	$16.7 billion to $16.9 billion	+13.9% to +15.3%
Non-GAAP EPS	Q4 FY2026	$1.16 to $1.18	—
GAAP EPS	Q4 FY2026	$0.80 to $0.85	—
Non-GAAP Gross Margin	Q4 FY2026	65.5% to 66.5%	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2026	$59.0 billion to $60.0 billion	$62.8 billion to $63.0 billion	+$2.8 billion to $4.0 billion	Raised
Non-GAAP EPS	FY2026	$4.00 to $4.06	$4.27 to $4.29	+$0.21 to $0.29	Raised

Product revenue

Q3 FY2026

Segment	Q3 FY2026	Q3 FY2025	YoY
Networking	$8.815B	$7.068B	+24.7%
Security	$2.008B	$2.013B	-0.2%
Collaboration	$1.024B	$1.031B	-0.7%
Observability	$0.269B	$0.261B	+3.1%
Services	$3.724B	$3.775B	-1.4%

Geographic mix

Q3 FY2026

Segment	Q3 FY2026	Q3 FY2025	YoY
Americas	$9.569B	$8.38B	+14.2%
EMEA	$4.054B	$3.736B	+8.5%
APJC	$2.218B	$2.034B	+9.0%

Management tone

Customer optimization hangover → AI experiments → AI-driven re-acceleration → Network refresh as operating model → AI infrastructure as quantified revenue engine → Hyperscaler design-win cycle as the operating model

AI infrastructure has now had its FY27 number anchored before FY26 even closes — a step further than last quarter's $3B FY26 revenue framing. Three quarters ago Cisco was crossing $1B in cumulative AI orders; two quarters ago FY25 finished at $2B+ with $3B FY26 revenue volunteered; last quarter the FY26 order target moved to $4B+; this quarter it's $9B FY26 orders / $4B FY26 revenue / "at least $6B" FY27 revenue. From the call: "It's reasonable to expect at least $6 billion of AI hyperscale revenue in FY27." Management is now staking credibility to a two-year forward number — unprecedented at this level of specificity for Cisco.

Silicon One graduated from "future strategic asset" to "the reason hyperscalers can't ignore Cisco." Last quarter the milestone was the millionth chip shipping; this quarter it's design wins across multiple use cases — including the first two P200 scale-across wins and a G200 scale-out win. Chuck's quote: "If you don't have silicon you're going to struggle to be relevant to the hyperscalers and I think that's what we're seeing." This is the most exclusionary positioning Cisco has used against pure-play networking competitors in years; if the design wins materialize into deployment, the FY27 number isn't optimistic, it's mechanical.

Campus refresh shifted from "multi-year tailwind beginning" to a quantified customer urgency narrative. Last quarter the campus story was three product families ramping faster than historical launches; this quarter management put a customer-survey number behind it: "With traffic across these networks expected to increase 3x over the next three years because of AI, 93% of respondents are accelerating their network modernization plans." That's the closest Cisco has come to claiming the campus opportunity is a near-certainty rather than a thesis — and Q3 campus orders >25% YoY is the proof point.

Margin tone hardened from "absorbing tariffs without damage" to acknowledging structural mix headwinds. Two quarters ago Cisco hit the 67.5–68.5% gross margin band cleanly; last quarter it sat in the middle of the range; this quarter Q3 gross margin came in at 66.0% — 150–250bps below guide — and the Q4 guide steps down again to 65.5–66.5%. The new framing in Q&A was explicit: "hardware accelerating ~30% growth vs. software at 1%" with mix the larger margin driver, not memory. The pivot from margin-defense to operating-leverage-as-the-story is meaningful — Cisco is telling investors to watch operating margin, not gross margin, as the AI ramp scales.

Security stayed flat at $2.0B (0% YoY) — the Splunk transition drag now in its second quarter of suppressing the reported line. Last quarter security was -2%; this quarter 0%. Management's framing on the call: firewall orders posting double-digit growth, core security ex-Splunk on track for double-digit organic exit growth by year-end, but the Splunk cloud-vs-on-prem mix shifted another 2–3 points QoQ. The 15–17% long-term security target is now clearly pushed into FY27 or later — but the order-level signals (firewall, new product cohort) are still building.

Recurring themes management leaned on this quarter:

AI infrastructure hyperscaler demand acceleration with $9B FY26 order targetSilicon One design wins establishing hyperscaler differentiation across scale-across and scale-out use casesCampus networking refresh urgency driven by 3x AI-related traffic growthBroad-based product order growth across all geographies and customer segments (35% total, 19% ex-hyperscaler)Security portfolio transition to new products offsetting legacy decline, with agentic AI security capabilities emergingMargin pressure from mix and memory costs being offset by operational efficiency and productivity gains

Risks management surfaced:

Memory price increases across the market impacting product gross marginsMix headwinds in product revenue offsetting pricing and productivity improvementsSplunk transition from on-premise to cloud creating near-term revenue dragTariff and exemption changes could impact FY26 guidance assumptionsAI-enabled threats and emerging security challenges requiring continuous innovation

Q&A highlights

Tal Liani · Bank of America

Non-AI orders grew 19% excluding hyperscalers. Asked whether the non-AI environment is materially better than last quarter and whether enterprises are buying ahead due to supply constraints, and questioned the sustainability of this growth rate.

Management attributed non-AI order acceleration to enterprise AI expansion (inferencing/agentic applications requiring modernized networks), cybersecurity threat preparedness, and continued hyperscale adoption. Mark provided three data points to address pull-forward concerns: Q2 saw 10% X webscale growth vs 19% in Q3 (9-point acceleration, with ~4-5 points from price increases); Q4 pipeline showed no incremental pull-forward vs year-ago; Q4 pipeline grew throughout Q3 with no degradation. Management concluded pull-forward was modest.

Enterprise data center switching business up over 40% in ordersQ2 order growth 10% vs Q3 19% for X webscale (9-point acceleration)Price increases accounted for 4-5 points of accelerationQ4 pipeline grew through Q3 with no degradation

Aaron Rakers · Wells Fargo

Asked about supply chain tightness (competitors noting potential decommits) and what's driving the significant AI order intake increase from $1.9B to ~$3.7B in Q4.

Management highlighted Silicon One as key differentiator providing supply chain control. Mark detailed securing silicon supply through calendar year 26, 20+ memory reduction programs, strategic Nanya investment with 3-year supply agreement, DDR4 to DDR5 conversions, and $6.7B increase in inventory/advanced purchase commitments in last 90 days (up 48% QoQ, +11.6B YoY). No decommits seen. On AI orders: emphasized non-linearity, noted ~50% of wins in optics (Acacia), primarily scale-out with 5 design wins starting early orders in Q4 but scale expected in FY27.

Silicon supply secured through calendar year 2620+ memory reduction programs activeInventory and advanced purchase commitments up $6.7B in last 90 days (48% increase)YoY inventory/commitment increase of $11.6B

David Vogt · UBS

Asked about security/software portfolio improvement trajectory and Splunk FY27 impact from license-to-subscription mix shift. Also requested margin breakdown between memory vs. product mix headwinds.

Chuck noted strong improvement in security firewall business with double-digit order growth last quarter, legacy security drag lessening, on track for approaching double-digit organic Cisco security revenue growth exit. Splunk FY27 highly contingent on cloud vs. on-prem mix evolution (saw 2-3 point shift Q2-Q3); if stabilizes, should reduce drag. Mark identified mix as bigger margin factor than memory: hardware accelerating ~30% growth vs. software at 1%, indicating hardware has good margins. Supply chain team delivering substantial productivity improvements and scale benefits supporting margin stability.

Firewall orders showing strong double-digit growthTargeting approaching double-digit organic Cisco security revenue growth by year-endHardware growing ~30% vs. software at 1%Cloud-to-on-prem mix shifted 2-3 points Q2-Q3

Mina Marshall · Morgan Stanley

Asked about order duration trends in AI business and request to split gross margin headwind between memory and product mix.

Mark stated no material change in order duration; orders remain nonlinear with advance planning as always. On margins: gross margins at 66% (in-line with expectations and guidance midpoint), management believes margins have stabilized. Attribution to: 20+ memory utilization programs, DDR4-DDR5 conversions, price increases, adjusted terms/conditions, and leveraging financial strength on advanced purchase commitments. Beyond gross margin, focused on operating leverage with record operating margin dollars in Q3, targeting 34% op-inc as % of revenue going forward.

No change in order durationGross margins at 66% (Q3 and Q4 guide)20+ memory reduction programs activeRecord operating margin dollars in Q3

Michael Ng · Goldman Sachs

Asked for detail on pricing strategy implementation (which products, repricing POs) and price elasticity observations.

Mark clarified that 4-5 points of X webscale acceleration in Q3 was purely from pricing without incremental units. Management tightened terms/conditions: reduced notice period from 30 days to 15 days pre-increase and from 30-45 days to 15 days post-increase for honoring quotes, effectively halving exposure window. Pricing applied only to hardware (not software), applied selectively based on competitiveness and memory utilization. No specific price elasticity concerns mentioned; strategy focused on where company is most competitive and memory utilization highest.

4-5 points of non-webscale order acceleration purely from pricing (no unit growth)Reduced notice period from 30 to 15 daysReduced quote honoring period from 30-45 to 15 daysPricing applied only to hardware, not software

Answers to last quarter's watch list

Q2 AI infrastructure orders vs. the $1.3B Q1 run-rate — FY26 hyperscaler AI orders YTD now at $5.3B (Q1 $1.3B + Q2 implied ~$2.1B + Q3 ~$1.9B), and management raised the FY26 target from $5B to $9B — implying ~$3.7B in Q4 alone. Orders are running well above the $1.3B Q1 floor and FY27 revenue has been anchored at $6B+. Status: Resolved positively

First quarter of growth in the Splunk-impacted security line — Security came in flat at 0% YoY (vs -2% in Q1), not yet returned to growth but the drag is narrowing. Firewall orders are in double-digit growth and management targets "approaching double-digit" organic exit growth by year-end, but the Splunk cloud-mix shift continues (another 2–3 points QoQ). Status: Continue monitoring

Non-AI base growth holding the 9% ex-hyperscale orders pace — Ex-hyperscaler product orders grew 19% in Q3, double the Q1 pace, with campus networking orders >25% and enterprise data center switching >40%. The non-AI base isn't holding, it's accelerating. Status: Resolved positively

First named Humane or Middle East sovereign booking — No named Humane disclosure on the call; the closest is the $900M YTD in orders / $3B pipeline framing for neocloud/sovereign/enterprise high-performance AI — still category-level, not customer-named. Status: Continue monitoring

Operating cash flow recovery — Inventory and advanced purchase commitments increased $6.7B in the last 90 days alone (a deliberate working capital build for AI supply security), so OCF recovery this quarter is structurally constrained by management's choice to lean into supply. The press release doesn't isolate Q3 OCF in the inputs; the working capital build is the explanation for any continued YoY OCF pressure. Status: Not resolved — the metric is now confounded by deliberate inventory build, so the original watch question is no longer cleanly answerable.

What to watch into next quarter

Whether Q4 AI infrastructure hyperscaler orders deliver the implied ~$3.7B (to reach the $9B FY26 target) — Wells Fargo's question implied this is what the new guide bakes in; a meaningful shortfall would force a re-baseline of the FY27 $6B+ framing

Q4 non-GAAP gross margin vs. the 65.5–66.5% guide — landing at the low end would signal hardware-mix dilution is deepening; landing at the high end would suggest the 66% has stabilized as the new floor

Networking growth rate excluding hyperscaler revenue — Q3 Networking grew 25% with hyperscaler revenue (Acacia + Silicon One systems) the dominant driver; the ex-hyperscaler networking line is what determines whether the campus refresh thesis is delivering revenue, not just orders

First named sovereign AI booking, ideally with a dollar disclosure — the $3B pipeline framing has now repeated for two quarters; without a named first customer, this transitions from "building" to "stale" by Q4

Whether the FY27 "$6B+ hyperscaler AI revenue" framing gets formalized as guidance on the Q4 call — Cisco typically issues FY guidance with Q4 results; the question is whether the $6B becomes a hard number or stays qualitative

Sources

Cisco Q3 FY2026 Press Release (Form 8-K Exhibit 99.1), filed May 13, 2026 — https://www.sec.gov/Archives/edgar/data/858877/000085887726000075/exhibit991pressrelease-q3f.htm
Cisco Q3 FY2026 earnings call prepared remarks and Q&A (as reflected in extraction inputs)
Cisco Q1 FY2026 Tapebrief (prior quarter context and watch list)
Cisco Q4 FY2025 and Q3 FY2025 Tapebriefs (multi-quarter trajectory)

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