Cisco’s earnings beat, AI orders surge, and layoffs reveal the defining tension of the AI economy.
KEY TAKEAWAYS
Cisco reported a massive quarter, beating both revenue and earnings expectations while showing explosive growth in networking and data center demand. The company’s AI infrastructure business is accelerating far faster than Wall Street expected.
The hyperscalers are still spending aggressively on AI infrastructure. Companies like Microsoft, Amazon, Google, and Meta are racing to build out the next generation of AI data centers, and Cisco is supplying the plumbing that makes it all work.
Cisco raised its AI infrastructure order target from $5 billion to $9 billion in the middle of the fiscal year. That kind of guidance increase from a mature company signals demand strength, not hype.
At the same time, Cisco announced nearly 4,000 layoffs. The AI economy continues to create the uncomfortable reality of booming profits and shrinking workforces happening simultaneously.
The broader market signal is that investors are increasingly rewarding the infrastructure layer of AI. The companies building the roads, switches, optics, and security underneath AI are being repriced higher by the market.
MY HOT TAKES
AI infrastructure is still where the real money is being spent. The models get the headlines, but the plumbing gets the orders.
Cisco is not suddenly sexy, but sexy is overrated on Wall Street. Cash flow, orders, and hyperscaler demand tend to age better than buzzwords.
The market is rewarding companies that can prove AI is showing up in actual revenue. Cisco just walked into the room with receipts.
The layoffs are not a footnote. They are the uncomfortable evidence that AI is both a growth engine and a labor-displacement machine.
Investors should not confuse old tech with dead tech. Sometimes the boring company building the roads ends up owning the tollbooth.
You can quote me: “The companies that build what the future runs on have a habit of showing up in your portfolio and staying there.”
Jungle survival guide. I remember way–WAY back in the 1980s walking into my in-law's house and seeing my father-in-law sitting with a large accounting column pad and a Wall Street Journal studying the ticker crawling at the bottom of his television. He was watching FNN–Financial News Network, which would go on to become the ubiquitous CNBC that we all know and love today. My birth-father was a scientist who read that other well-known New York newspaper. His focus was on section one, the once-a-week Science Times, and the sports section.
As you might guess, I was fascinated with that ticker tape on the screen. I noticed a preponderance of several symbols. AAPL, ORCL, MSFT, INTC, SUNW. They showed up with quite a bit of frequency. There were others, but I knew those symbols. One of the benefits of my father's career was a keen appreciation for technology which has stayed with me throughout my life and career. Eventually, I learned to use that information on the ticker crawl–and what was being said on the top part of the screen–to make money. It all clicked for me right around the time when a new symbol started showing up with frequency–CSCO. The NASDAQ ticker crawl was where publicly traded tech was born.
Turn the clock forward forty years–and YES I have been happily with my wife through the duration–at least four of those companies remain highly relevant to today's technology, the markets, and, indeed, the entire US economy. I will let you decide which four I have in mind, but this morning I want to talk about the youngest of those tickers, CSCO–Cisco Systems.
If you have ever asked yourself what Cisco actually does, the simplest answer is this: every single piece of data that moves across the internet–every email, every streaming video, every AI query, every cloud transaction–travels through a piece of Cisco hardware at some point in its journey. Routers, switches, fiber optics, security appliances. Cisco doesn't write the software that thinks; it builds the plumbing that connects the thinking to the world. That is not a sexy business to explain at a dinner party, but it is an extraordinarily powerful business to own in a portfolio when the world is spending trillions of dollars to move more data, faster, than at any point in human history. Which brings me to last night.
After last night’s close, Cisco reported its fiscal third quarter 2026 earnings and Wall Street did not just applaud, it gave the company a standing ovation. Revenue came in at $15.84 billion against expectations of $15.56 billion, up 12% year over year. Adjusted earnings per share hit $1.06 versus the $1.04 the Street was looking for. Net income reached $3.4 billion, up 35% year over year. Networking revenue specifically surged 25% to $8.82 billion. Product orders overall grew 35%, with networking orders up more than 50% and data center switching orders up over 40%. These are not rounding errors. These are the numbers of a company that has found its moment. The stock responded accordingly, surging roughly 20% in after-hours trading one of the single biggest post-earnings moves you will see from a company of this size and maturity.
But the headline number that made me step back and think was the AI infrastructure order forecast. Cisco came into the quarter with a full-year AI order target of $5 billion. They have already secured $5.3 billion in AI infrastructure and hyperscaler orders through the first three quarters of fiscal 2026 alone, meaning they hit their annual target before the year was over. So they raised it. To $9 billion! That is an 80% increase in guidance, mid-year, from a company that does not traditionally traffic in the hype that tech investors have grown accustomed to–there were no leather jackets. Full-year revenue guidance moved up from $62.8 to $63.0 billion, from the prior range of $61.2 to $61.7 billion, and fourth quarter revenue guidance of $16.7 to $16.9 billion obliterated the analyst consensus of $15.56 billion. When a company of Cisco's scale raises guidance by that magnitude in the back half of the year, it is not because things are trending nicely — it is because the hyperscalers are buying everything that isn't nailed down. Microsoft, Amazon, Google, Meta–they are all in a race to build the AI data center infrastructure of the next decade, and Cisco is selling them the connective tissue that makes it all work. Silicon, fiber optics, high-speed switches, cybersecurity. The picks and shovels of the AI gold rush, and Cisco is the general store.
Now here is where the story gets uncomfortable, and I think it is important that we talk about it directly. The very same press release that announced that $9 billion jackpot also announced that Cisco is cutting nearly 4,000 employees, which is less than 5% of its global workforce, effective May 14th. The restructuring charge will run up to $1 billion pretax, with roughly $450 million hitting in the current quarter. CEO Chuck Robbins said the company needs "focus, urgency, and discipline" for the AI era, and that capital is being redeployed into silicon, optics, security, and enterprise AI tools. I will give the man credit for not dressing it up. He said what it is: we are redirecting resources toward what the market is paying for. The severance package reportedly includes free AI training courses, which I will leave without editorial comment because the irony…is, um, self-evident. This is also not the first time Cisco has pulled this particular lever. The company cut approximately 7,000 employees in a similar restructuring back in 2024. The market rewarded that move too. The pattern is becoming clear and consistent across the entire technology industry. By mid-May of 2026, the tech sector has already shed more than 92,000 jobs, with April alone accounting for 45,000 cuts–the most volatile month for tech employment in two years. Meta is doing it. Google is doing it. And now Cisco is doing it again. Record revenue, record orders, and a pink slip for several thousand people on the same Tuesday night. That is the defining tension of the AI era, and I think every investor in this market needs to sit with it for a moment before deciding what it means for their portfolio.
Here is what I take away from all of it. The market is sending a very specific signal right now, and it has been sending it consistently for the better part of three years. The companies that build the infrastructure layer of the AI economy–not the models, not the applications, but the physical and digital plumbing underneath–are being repriced higher. Cisco just became the latest and most dramatic case study in that thesis. A 20% after-hours move on a company with a half-trillion dollar market cap is the market screaming at you that it had been undervaluing this story. The question for you, my loyal followers–the good folks who are trying to protect and grow capital, not just chase headlines–is whether this repricing is the beginning of a longer recognition, or whether last night's move pulled forward years of appreciation in a single session. That is the question worth spending your morning thinking about, and I do not pretend to have a clean answer. What I do know is that the infrastructure thesis is not going away. AI needs bandwidth. AI needs compute. AI needs security. AI needs the plumbing. Cisco builds the plumbing.
I started this morning by telling you about two very different men who shaped the way I see the world–one who taught me to understand science and technology, and one who taught me to translate that understanding into financial decisions. For most of my early career, those two lenses lived in separate rooms, just like my father reading the Science Times in one corner of my life and my father-in-law working his column pad in another. But eventually, inevitably, they merged. Watching CSCO start showing up on that FNN ticker crawl in the late 1980s was one of the first moments I felt both lenses click into focus simultaneously. Technology I understood, moving through a financial instrument I was learning to read. Forty years later, Cisco is still teaching that same lesson: the companies that build what the future runs on have a habit of showing up in your portfolio and staying there. Last night's earnings report was not just a quarterly beat. It was a reminder that the jungle has rules, and one of the most reliable ones is that the people who build the roads tend to do just fine–even when they are laying off the road crew to pay for the next generation of highway.
YESTERDAY’S MARKETS
Yesterday, the S&P 500 rose approximately 0.6% to a new record close and the Nasdaq climbed 1.2% to its own fresh high, while the Dow Jones Industrial Average slipped 0.1%. The gains came despite a hotter-than-expected April Producer Price Index reading that showed wholesale prices up 6% year-over-year, their largest 12-month jump since December 2022! Technology and semiconductor stocks led the advance, with the Mag-7 adding roughly $516 billion in combined market value on the session.
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