Networking technology giant Cisco (NASDAQ: CSCO) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 7.6% year on year to $14.67 billion. The company expects next quarter’s revenue to be around $14.75 billion, coming in 0.8% above analysts’ estimates. Its non-GAAP profit of $0.99 per share was 1.3% above analysts’ consensus estimates.

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StockStory’s Take

Cisco’s second quarter was shaped by strong demand for AI infrastructure and a refreshed networking product lineup, driving solid revenue and margin results. Despite meeting Wall Street’s expectations on key metrics, a modestly negative market reaction followed. Management attributed the performance to growth in webscale and enterprise orders, alongside continued adoption of advanced security products. CEO Charles Robbins noted, “We are innovating faster than ever before, making AI foundational in our designs and fusing security deep into our networking products.” The company also highlighted sequential improvements in order growth across most geographies, though softness persisted in public sector demand.

Looking ahead, Cisco’s guidance reflects optimism around sustained AI infrastructure momentum, a multiyear networking refresh cycle, and ongoing traction for its security solutions. Management believes the upcoming quarters will be driven by increased enterprise AI adoption and continued integration with technology partners like NVIDIA and AMD. CFO Mark Patterson stated that priorities include “durable profitable growth, financial discipline, and transparency,” while management flagged the need for vigilance around tariffs and evolving customer spending patterns. The company expects gradual acceleration in security and services as new products gain share and customer pilots convert to larger deployments.

Key Insights from Management’s Remarks

Management identified robust AI infrastructure demand, solid networking growth, and new product launches as primary drivers of recent performance, while noting ongoing challenges in public sector orders and a transition in their security portfolio.

• AI infrastructure orders surge: Cisco reported record AI infrastructure orders from webscale customers, exceeding $800 million in the quarter and over $2 billion for the year. This momentum more than doubled management’s original annual target, signaling strong technology relevance for large-scale data center deployments.

• Networking product refresh cycle: Double-digit growth in networking product orders marked the fourth consecutive quarter of such gains. The launch of Cat9k smart switches and a refreshed lineup of routers and IoT devices, powered by Silicon One, spurred customer upgrades and set the stage for a multiyear replacement cycle.

• Security portfolio transition: Management noted mid-single-digit growth in security orders, with new and refreshed products such as Secure Access, XDR, and Hypershield seeing over 20% order growth. However, older security offerings remained a drag, particularly in U.S. federal markets, and the transition to newer products is ongoing.

• Splunk synergy and cross-selling: The integration of Splunk contributed to a 14% increase in new logos for the quarter, validating Cisco’s cross-selling strategy. Over 300 new customers adopted Splunk in the latest period, highlighting early progress in combining observability and security capabilities.

• Mixed regional and customer segment trends: While Americas, EMEA, and APJC all posted solid order increases, public sector orders declined year-over-year due to tough prior-year comparisons. Service provider and cloud customers drove the strongest gains, up 49%, aided by continued investment in AI and network modernization.

Drivers of Future Performance

Cisco’s outlook is anchored by expectations for ongoing AI-driven demand, product adoption in networking and security, and disciplined cost management, even as external risks like tariffs and customer spending shifts persist.

• Enterprise AI adoption ramps up: Management sees a growing pipeline of enterprise AI opportunities, with pilots underway and expectations for broader adoption in the second half of the year. The integration of Silicon One with NVIDIA’s ecosystem and partnerships with emerging sovereign cloud providers are seen as key enablers of this trend.

• Networking and security upgrade cycles: The company anticipates a multiyear refresh cycle for campus switching and data center networking, leveraging strong installed base and recent product innovations. Management expects new and refreshed security products to gradually become a larger share of the portfolio, driving improved growth rates as legacy offerings diminish in impact.

• Tariff and macroeconomic vigilance: Cisco’s guidance assumes current tariff regimes remain, with management citing operational agility and supply chain scale as mitigants. However, they remain alert to potential order timing shifts, especially in federal and enterprise markets, as customers respond to budget constraints or regulatory changes.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be closely monitoring (1) the conversion of enterprise AI pilots into full-scale deployments and their impact on order growth, (2) the pace of adoption for Cisco’s new networking and security products—particularly within the large installed base, and (3) signs of stabilization or improvement in public sector and services revenue. Execution on partnerships and the ability to manage external risks such as tariffs will also be important signposts.

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