Cisco (CSCO) Q4 2025 earnings review
AI Orders Surge Past $2B Target, But Overall Demand Moderates Ahead of FY26
Cisco closed its fiscal year with strong Q4 results, beating expectations with 8% revenue growth and 14% non-GAAP EPS growth. The clear highlight was the AI infrastructure business, which booked over $800 million in Q4 orders from webscale customers, bringing the full-year total to over $2 billion—double the initial target. However, this AI strength masked a significant deceleration in overall demand. Total product order growth slowed to 7% YoY, a sharp drop from the 20%+ pace of the prior three quarters, dragged by a contraction in the Public Sector. Guidance for FY26 points to a further moderation in top-line growth to ~5%, suggesting that while the AI opportunity is real and accelerating, broader market growth is cooling.
🐂 Bull Case
The AI infrastructure business is a powerful growth engine. FY25 orders from webscale customers exceeded $2 billion, doubling the initial target and validating Cisco's Silicon One-based strategy in the most demanding environments.
Beyond AI, Cisco has established a strong foothold with the largest cloud providers. The Service Provider & Cloud segment saw 49% order growth, with two webscale customers each placing over $1 billion in total orders during FY25.
The introduction of new Catalyst 9000 smart switches, powered by Silicon One, marks the beginning of a major multi-year refresh opportunity for Cisco's massive installed base of campus networking equipment.
🐻 Bear Case
Total product order growth decelerated sharply to 7% in Q4 from an average of over 20% in the preceding three quarters. This slowdown, particularly in the Enterprise segment, raises concerns about the demand outlook for FY26.
The Public Sector segment is a clear weak spot, with orders contracting 6% YoY. This is a significant drag on overall growth and indicates persistent headwinds in government spending.
Full-year guidance for ~5% revenue growth implies a continued slowdown from current levels. This suggests that even the powerful AI tailwind may not be enough to offset broader market moderation and tough prior-year comparisons.
⚖️ Verdict: ⚪
Mixed. The phenomenal success in the AI and webscale space is undeniable and provides a powerful, high-margin growth driver. However, the sharp deceleration in overall product orders, particularly from enterprise and public sector customers, is a significant red flag that cannot be ignored. The FY26 guidance confirms a cooling growth trajectory. Cisco is successfully capturing the AI wave, but the tide for its broader business appears to be receding.
Key Themes
AI Infrastructure Demand Accelerates
Cisco's AI business is rapidly accelerating, booking over $800M in orders in Q4 alone, up from ~$600M in Q3. The full-year total of over $2B far exceeded the original $1B target. This demand is driven by webscale customers deploying Cisco's Silicon One-based systems for AI training clusters. Management notes that enterprise AI orders, while still early, are ramping with a pipeline in the hundreds of millions.
Data Contradicts Narrative: Overall Order Growth Decelerates Sharply
While management's narrative focused on strong AI momentum, the key forward-looking indicator of total product orders showed a significant slowdown. YoY growth dropped to just 7% in Q4, a stark contrast to the +20%, +29%, and +20% growth seen in Q1, Q2, and Q3 respectively. This deceleration was most pronounced in the Enterprise segment, which fell from +22% in Q3 to +5% in Q4, suggesting a cooling of broader IT spending.
Networking Portfolio Shows Accelerating Recovery
Cisco's core Networking business, its largest segment, has recovered strongly from the inventory digestion cycle. Revenue growth has accelerated for three consecutive quarters, moving from -23% in Q1 to +12% in Q4. This signals that demand for core infrastructure is normalizing, providing a stable foundation for the business as it layers on new growth from AI and security.
Splunk Integration Showing Early Synergies
Management highlighted positive momentum from the Splunk acquisition. The combined sales force drove a 14% YoY increase in new logos for Splunk in Q4, with over 300 new customers added in the second half of the year. This demonstrates early success in leveraging Cisco's broader market reach to accelerate Splunk's customer acquisition.
Public Sector Contracts Amid Broader Recovery
While other segments recovered, Public Sector orders fell 6% YoY. This makes it the sole customer segment to contract in the quarter, acting as a significant drag on overall performance. Management noted in Q1 that this weakness was concentrated in U.S. Federal spending, which appears to be a persistent headwind.
Tariff Uncertainty Looms Over Margins
Management explicitly stated that guidance for Q1 and FY26 includes the estimated impact of current tariffs on China (30%), Mexico (25%), and Canada (35%), where exemptions are not applicable. While Cisco has a strong track record of mitigating these impacts through its supply chain, tariffs remain a key macro risk to profitability.
Other KPIs
Stable. Total RPO grew 6% YoY, a slight deceleration from 7% in Q3. Product RPO, a key indicator of future hardware and software revenue, grew a healthier 8%. While still positive, the single-digit growth rate contrasts with the double-digit growth seen in late FY24 and early FY25, mirroring the slowdown in new orders.
Stable. Total ARR grew 5% YoY, with Product ARR growing at a faster 8% clip. Total subscription revenue now represents 54% of Cisco's total revenue, underscoring the ongoing, albeit slow, transition towards a more predictable recurring revenue model.
Accelerating. Full-year operating cash flow increased a robust 30% YoY, reflecting strong profitability and disciplined working capital management. This financial strength enabled the return of $12.4 billion to shareholders during the year through dividends and buybacks.
Guidance
Decelerating. The guidance midpoint of $59.5B implies ~4.9% YoY growth, a marked slowdown from the 8% growth delivered in Q4 FY25. Management attributes this to difficult comparisons from prior backlog shipments, but it confirms a cooler growth outlook for the year ahead.
Decelerating. The midpoint of $14.75B implies a 6.6% YoY growth rate. This is down from 8% in Q4 and marks a sequential deceleration in the growth trend.
Stable. The midpoint of $4.03 implies ~5.8% YoY growth. This growth rate is higher than the guided revenue growth, indicating that management expects to deliver continued operating leverage and margin expansion in the coming year.