Cisco’s Stock Takes a Dive: Memory Costs Impacting Profit Margins
Cisco Systems shares experienced their most significant drop since 2022, closing 12% lower on Thursday. This occurred despite surpassing earnings expectations, as skyrocketing memory chip prices put a strain on profit margins. This situation raises concerns about the company’s capacity to leverage the demand for AI infrastructure.
The networking behemoth announced fiscal Q2 2026 revenue of $15.35 billion, a 10% increase year-over-year, and adjusted earnings per share of $1.04. Both figures exceeded analyst expectations. However, investors responded negatively to warnings that rising memory costs—fueled by the intense demand for AI data centers—are impacting the company’s gross margins.
Product gross margin dropped to 66.4% in the quarter, a decrease of 130 basis points from the previous year. This decline is primarily due to higher memory chip prices. The global shortage of high-bandwidth memory, triggered by massive orders from AI infrastructure projects, has left companies like Cisco scrambling to secure supply at inflated costs. The company’s free cash flow also saw a 24% year-over-year decrease as capital expenditures surged.
Despite increasing its full-year revenue guidance to $61.2-61.7 billion and raising its adjusted EPS forecast, Cisco’s quarterly earnings guidance of $1.02-$1.04 met but didn’t surpass expectations. This outcome disappointed traders who had driven the stock to record highs earlier in the week.
Source: CNBC