Cisco Stock Looks Undervalued After Its Q3 2026 AI Infrastructure Results

Key Takeaways for Cisco Stock

• Cisco posted record revenue of $15.8 billion in Q3 FY2026, up 12% year-over-year.
• Operating margins recovered to 24% on a trailing basis after troughing at 22% in FY2025.
• Total product orders grew 35% year-over-year, with hyperscaler AI infrastructure orders reaching $1.9 billion in the quarter.
• TIKR’s model values CSCO at approximately $144, implying around 20% total return from the current price of $120.

Cisco’s operating margin trough is behind it but how much recovery is the income statement already pricing in? Pull up CSCO’s full financial history and valuation model on TIKR for free →

Cisco Stock Delivers Record Revenue While Operating Leverage Returns to the Equation

Cisco Systems (CSCO) posted record quarterly revenue of $15.8 billion in Q3 FY2026, up 12% year-over-year, as AI-driven demand for networking infrastructure translated into the company’s fastest top-line growth in years.

The maker of routers, switches, and network security software had spent several years watching operating income compress under the weight of acquisitions and a sprawling cost structure.

That dynamic shifted in Q3, with product orders surging 35% year-over-year as hyperscale customers accelerated buildouts of AI data centers using Cisco’s Silicon One chips and Acacia coherent optic technology.

AI infrastructure orders from hyperscalers reached $1.9 billion in the quarter, and CEO Chuck Robbins raised the full-year outlook to approximately $9 billion in AI orders from that segment alone.

Robbins emphasized in Q3 earnings call that the AI opportunity is expanding well beyond hyperscalers: “We took approximately $300 million in AI infrastructure orders from neocloud, sovereign and enterprise customers in Q3.”

Campus networking also hit record orders in Q3, up 25% year-over-year, as enterprises modernize networks ahead of AI-driven traffic growth.

The security segment, which includes the Splunk data observability platform acquired in FY2024, remained a near-term drag as Splunk customers shifted from on-premise licenses to cloud subscriptions, a mix headwind CFO Mark Patterson called transitory, with compares expected to normalize in the first half of FY2027.

Guidance for Q4 pointed to revenue of $16.7 billion to $16.9 billion, implying roughly 14% year-over-year growth at the midpoint.

The AI order surge and campus refresh cycle are the story but the income statement is where conviction gets built. Explore Cisco’s full earnings history and forward estimates on TIKR for free

Cisco’s Operating Margin Recovery: How Far the Income Statement Has Come and How Far It Has to Go

Cisco’s operating margin contracted from 27% in FY2023 to 22% in FY2025, a four-year low driven by integration costs and rising R&D investment after the Splunk acquisition.

The trailing twelve-month read has since recovered to 24%, indicating that operating leverage is reasserting itself as revenue scales faster than the cost base.

Revenue grew at roughly 7% on a compound basis from FY2021 to FY2025, while total operating expenses grew faster, compressing the margin from the mid-27s to 22%.

The reversal showed up clearly in Q3, when CFO Patterson noted that operating expenses fell more than 2% as a percentage of revenue year-over-year, while top-line growth held at 12%.

Gross margins stabilized near 64%, providing the ceiling the operating leverage thesis requires.

Gross profit reached $39.1 billion on a trailing basis, and the thesis holds only if SG&A and R&D stop outrunning revenue growth.

Arista Leads on Operating Margins, but Cisco Stock Is Closing the Gap While Palo Alto Turns Negative

Arista Networks (ANET) has run operating margins above 41% in every quarter shown, reaching 43% at its peak, a level Cisco has never approached in this period.

Cisco’s operating margins recovered from 21% in the quarter ending July 2025 to 25% in the most recent quarter, the strongest reading in the eight-quarter dataset.

Meanwhile, Palo Alto Networks (PANW) posted a negative operating margin of 2% in the most recent quarter, a sharp reversal from 16% just one period prior, widening the gap between it and both peers.

The structural margin gap between Cisco and Arista reflects a fundamental difference in business mix: Arista runs a tighter, more focused product portfolio while Cisco carries the weight of Splunk integration costs and a broader security segment still in transition.

Cisco’s margin recovery trajectory, now confirmed across three consecutive quarters of improvement, is the specific mechanism the TIKR target depends on, and the peer chart shows that recovery is real even if the destination remains well below Arista’s floor.

Is Cisco Stock Undervalued in 2026? TIKR’s $144 Model Puts a Number on the Operating Leverage Bet

TIKR’s model values Cisco at approximately $144 by July 2030, implying around 20% total return from the current price of $120, or roughly 5% per year.

The operating leverage already visible in the income statement is the single mechanism this target depends on: revenue continuing to grow double digits while operating expenses hold below their historical percentage of revenue.

Gross margins stabilizing near 64%, a pattern consistent across both Q3 FY2026 and the trailing twelve months, provides the floor that makes additional operating margin expansion arithmetically possible.

The condition that has to hold is that AI infrastructure demand continues to convert product orders into recognized revenue at a pace that keeps operating income growing faster than the cost line, a trajectory the income statement has already started to confirm.

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Should You Invest in Cisco Systems, Inc.?

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What did Cisco say about AI infrastructure demand in its Q3 earnings call?

Cisco raised its full-year AI hyperscaler order target to approximately $9 billion, up from an earlier $5 billion expectation, citing triple-digit order growth from five of the largest hyperscalers in Q3.