Cisco’s AI Orders Boom While Gross Margins Move the Other Way

Cisco’s AI order book is expanding rapidly, but the company’s gross margins are moving in the opposite direction. Management now expects fiscal 2026 hyperscaler AI orders of $9 billion and hyperscaler AI revenue of $4 billion, up from prior targets of $5 billion and $3 billion, respectively, following a strong intake through May 13, 2026. At the same time, total non-GAAP gross margin declined to 66.0% in Q3 FY26 from 68.6% a year earlier, and non-GAAP product gross margin fell to 64.3% from 67.6%.

Fact: Cisco reported $5.3 billion of AI infrastructure orders taken year-to-date from hyperscaler customers and raised its full-year AI outlook on May 13, 2026, citing sustained demand for AI infrastructure (Q3 FY26 slides). Fact: margins compressed year over year in Q3 FY26, both total and product, as disclosed in the press release (press release). Management has previously tied product margin pressure to product mix and higher memory costs, noting “mix and higher memory costs” as the primary drivers (prepared remarks).

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