Is Cisco Systems Stock Poised for New Highs as Q4 Earnings Approach?

With Cisco’s stock soaring nearly 60% year to date and just 5% from a 52-week and all-time high of $130 a share, its upcoming earnings report could determine whether there is enough fundamental support to extend the rally.

The key question for investors is whether Cisco's improving growth profile and rapidly expanding AI opportunity justify buying CSCO ahead of earnings or whether much of the optimism is already reflected in its valuation.

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Cisco Enters Q4 Earnings With Strong Momentum

As shown in the EPS surprise performance chart above, Cisco stock surged after reporting its most recent Q3 results in May and has now soared +170% over the last two years.

This comes as Cisco delivered an impressive fiscal third quarter, reporting record revenues of $15.8 billion, up 12% year over year. Non-GAAP earnings increased 10% to $1.06 per share. The top and bottom line results exceeded the high end of management's guidance and comfortably topped Wall Street’s expectations by roughly 2%, respectively.

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Perhaps more encouraging was the strength of Cisco's underlying demand trends. Total product orders jumped 35% YoY and increased 19% when excluding hyperscale customers. Networking product order growth accelerated to more than 50%.

Cisco's traditional networking franchise is also benefiting from what it characterized as a major multi-year campus networking refresh cycle (private networks that link buildings and infrastructure within a specific area). Campus networking orders increased by more than 25% in Q3, while data center switching orders surged by more than 40%.

Those trends give Cisco an encouraging setup heading into its Q4 report.

Management previously guided for fourth-quarter revenue to hit a new quarterly peak of between $16.7 billion and $16.9 billion. Cisco also projected Non-GAAP earnings to be at a new quarterly high of  $1.16-$1.18 per share, with the company expecting a non-GAAP gross margin of 65.5%-66.5% and an operating margin of 34%-35%.

It’s also noteworthy that Cisco raised its full-year outlook following its Q3 results, now expecting full-year revenue at $62.8-$63 billion and adjusted earnings of $4.27-$4.29 per share, compared with its previous guidance of $61.2-$61.7 billion in revenue and $4.13-$4.17 in adjusted EPS.

Notably, the Zacks Consensus calls for Cisco’s Q4 sales to increase nearly 15% to $16.85 billion, with Q4 EPS expected to rise 18% to $1.17 per share (Current Qtr below). Analyst consensus expectations call for annual revenue to be up 11% to $62.95 billion, with FY26 EPS projected to rise 12% to $4.28.

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AI Infrastructure Could Be Cisco's Biggest Catalyst

AI remains one of the most important pieces of the Cisco investment story.

Demand from hyperscale customers has accelerated substantially. Cisco booked $5.3 billion of AI infrastructure orders through the first three quarters of fiscal 2026 and subsequently raised its full-year AI order expectation to $9 billion from $5 billion.

Management also increased its fiscal 2026 AI infrastructure revenue expectation to $4 billion from $3 billion.

That momentum is significant because Cisco is increasingly positioned to participate in the massive infrastructure buildout needed to connect AI clusters and data centers. As AI workloads become larger and more complex, networking performance becomes increasingly critical, creating opportunities for Cisco's switching, routing, optics and related technologies.

Investors will want to pay close attention to management's latest AI order numbers on Wednesday.

Another increase in AI expectations could reinforce the argument that Cisco is transitioning from a mature networking company into a more meaningful beneficiary of the AI infrastructure investment cycle. Conversely, any slowdown in hyperscale orders could disappoint investors given the increasingly optimistic expectations embedded in the stock.

Strong Cash Generation Supports Shareholder Returns

Cisco also remains an attractive cash-return story.

The company returned $2.9 billion to shareholders through dividends and share repurchases during its fiscal third quarter. That included approximately $1.7 billion in dividends and $1.3 billion in stock buybacks. It’s noteworthy that Cisco still had $9.6 billion remaining under its current share-repurchase authorization.

Meanwhile, Cisco most recently had $16.6 billion in cash and equivalents. This combination of substantial cash generation, dividends and buybacks provides investors with an additional source of returns beyond potential stock-price appreciation.

CSCO offers a respectable 1.38% annual dividend yield, noticeably above the benchmark S&P 500’s 1.01% average, while many of its tech peers remain primarily focused on growth and don’t pay dividends. Cisco’s 49% payout ratio also suggests there is room for future dividend hikes.

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Monitoring Cisco’s P/E Valuation

At current levels, Cisco stock is trading at around 30X forward earnings. This is a noticeable but not overly stretched premium to the S&P 500’s 22X and its Zacks Computer-Networking Industry Average of 18X, which includes peers such as Digi International DGII) and NetScout Systems NTCT).

That said, it’s also worth mentioning that CSCO is near its decade-long high of 35X forward earnings and is well above its 10-year median of 16X.

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Bottom Line

Cisco Systems enters its fiscal fourth-quarter earnings report with several powerful catalysts working in its favor. Surging AI infrastructure demand, a major enterprise networking refresh cycle, strong product orders and substantial shareholder returns have strengthened the company's investment case.

At the same time, expectations have risen alongside CSCO shares. That makes Wednesday's earnings announcement particularly important, as investors will be looking for evidence that the company can sustain its elevated growth trajectory into fiscal 2027.

While it's easy to see how investors have remained enthusiastic about Cisco Systems stock, CSCO currently lands a Zacks Rank #3 (Hold). Keeping that in mind, the plausibility of higher highs will certainly depend on a strong Q4 report and guidance that helps justify what has already been an extensive rally.

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This article originally published on Zacks Investment Research (zacks.com).

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