Key Takeaways
Cisco Systems Inc. (CSCO) reports fiscal third-quarter earnings Wednesday, with its 30 percent stock rally on the line as investors weigh strong AI-driven demand against rising component costs.
"While rev should be better, higher component costs will cap GM despite a series of price increases," UBS analyst David Vogt wrote in a May 4 note, highlighting the key tension for the stock.
Analysts expect revenue of $15.6 billion and adjusted earnings of $1.03 per share, up from $14.1 billion and 96 cents a year ago, according to FactSet. However, gross margins are forecast to fall to 66.2 percent from 68.6 percent in the prior-year period.
The report is a crucial test for Cisco after shares fell 12 percent on Feb. 12 following a margin miss in the previous quarter. Investors will be watching to see if price hikes can offset memory cost headwinds.
The company's networking segment, its largest source of revenue, has been a primary beneficiary of the AI boom. Spending on AI infrastructure from hyperscalers like Meta Platforms Inc. (META) has fueled a surge in demand for Cisco's hardware. Revenue from the networking division is projected to climb 19 percent from a year earlier to $8.44 billion.
Cisco's performance is a key barometer for the broader health of the AI hardware market. The results will show whether the high costs associated with the AI buildout can be sustained. Investors will look to the company's Q4 guidance, to be provided on the earnings call, for signs of continued demand acceleration.
This article is for informational purposes only and does not constitute investment advice.
