Jim Cramer Shrugs Off Cisco Systems' Post-Earnings Drop as AI Demand Story Remains Intact
Cisco Systems (NASDAQ:CSCO) has been one of the more unexpected beneficiaries of the AI infrastructure boom. Shares are up more than 60% over the past year and about 40% year-to-date, fueled by demand for networking gear in data centers. That strength was visible in the company's fiscal fourth quarter: revenue grew 18% year-over-year to $17.3 billion. But investors were far from impressed after earnings were released on August 12; the stock closed down 8.4% the next day. Jim Cramer, however, brushed aside the market's reaction, saying the pullback ignores the durability of Cisco's AI-driven demand.
The bigger debate centers on whether Cisco's growth can be sustained — and how much of it reflects high-margin enterprise AI fabric wins rather than lower-margin hardware upgrades. The quarter provided some positive signals: corporate orders climbed more than 30% to $13 billion, and Cisco ended the period with $46.7 billion in performance obligations and $32 billion in recurring revenue. Analysts at Bank of America and Morningstar took those as signs that Cisco is capturing hyperscaler demand effectively. But without a detailed breakdown of the backlog, many on Wall Street remain unsure whether the mix is truly AI-heavy or just commodity refresh activity.
Margin pressure is another key worry. Cisco's gross margin fell to 66.3% in the quarter, down from 68.4% a year earlier. AI revenue for fiscal 2026 was about $4 billion, still less than 10% of total sales. Meanwhile, Cisco's software business — a major source of margin-friendly revenue — is showing little momentum, with services growth flat in the fourth quarter. HSBC responded by downgrading the stock to Hold after the print.
Hedge funds have been gradually increasing their exposure. Insider Monkey data shows the number of funds holding CSCO rose to 97 out of 1,021 in the first quarter, up from 77 out of 1,041 in the fourth quarter of 2025. Compared with Arista Networks' forward P/E of about 45.5, Cisco's forward multiple of roughly 20.6 looks more balanced, even if that discount reflects slower growth expectations.
Insider Monkey recognizes both the risk and the potential in CSCO. But our conviction lies in the view that some AI stocks offer stronger return prospects with limited downside. If you're looking for an AI stock that could deliver 100x upside and has more promise than CSCO, see our report on the cheapest AI stock.
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