Cisco Systems (CSCO) bets on strong AI demand to drive growth

After starting the fiscal year on a weak note, Cisco Systems Inc. (NASDAQ: CSCO) has regained momentum, reporting higher second-quarter revenue and profit that beat analysts’ estimates. The company is optimistic about extending the uptrend into the remainder of the year, supported by the growing demand for its AI solutions.

The market reacted favorably to the positive outcome and the San Jose-headquartered network gear maker’s stock rallied in Wednesday’s after-hours trading. The shares have grown as much as 40% in the past six months alone, outperforming the broad market during that period.

Q2 Numbers Beat

The tech firm reported adjusted earnings of $0.94 per share for the January quarter, compared to $0.87 per share in the same period last year. Unadjusted profit was $2.4 billion or $0.61 per share in Q2, compared to $2.6 billion or $0.65 per share in the comparable period of fiscal 2024. Second-quarter revenue increased to $14.0 billion from $12.79 billion in the year-ago quarter.

A 3% drop in Networking revenues, the company’s largest operating division that accounts for nearly 50% of total revenues, was more than offset by strong revenue growth in the Observability and Security segments. Security revenue more than doubled, with strong contributions from Splunk, which joined the Cisco fold early last year. Revenue grew across all geographical areas.

For the third quarter of 2025, the Cisco leadership forecasts adjusted earnings in the range of $0.90 per share to $0.92 per share. The guidance for unadjusted earnings per share is between $0.57 and $0.61. The company is looking for April-quarter revenues in the $13.9-$14.1 billion range. At the mid-point, the target numbers are slightly below Wall Street’s estimates.

Raises Targets

Buoyed by the AI-driven momentum, the company raised its full-year revenue guidance to $56.0-$56.5 billion from the earlier forecast of between $55.3 billion and $56.3 billion. Similarly, the adjusted earnings per share forecast has been revised up to $3.68-$3.74 from the previously announced target of $3.60-$3.66 per share. In the most recent quarter, Cisco’s bottom line benefitted from strong growth in gross margins to a two-decade high, with Splunk playing a key role in the growth.

Cisco’s CEO Chuck Robbins said at the second-quarter earnings call, “We now have a dozen updated data integrations between Cisco and Splunk across our security and networking portfolio, including Secure Firewall, Catalyst Center, SD-WAN, and ICE. We continue our joint selling motions between Cisco and Splunk, including secure — Cisco Secure Network Analytics and XDR alongside Splunk’s SIM offering enhanced capabilities to the security operations center. We also continue to build our market-leading observability solutions to accelerate full-stack observability for the enterprise.”

Cisco’s stock traded up 2% on Thursday afternoon, after opening the session at $62.53. The all-time-high closing price of the stock was $62.81, on February 10.