Before the U.S. stock market opened on Thursday, shares of network equipment giant Cisco (CSCO) briefly fell more than 6%. The market focused on the company's latest quarterly guidance: despite decent orders and performance, the expectation of declining profit margins caused short-term investors to withdraw.
Pre-Market Movement: Stock Revaluation Following Guidance
In pre-market trading, Cisco's stock fell to around $80. Investors' concerns are not about revenue but rather the potential for "higher sales, thinner profits"—a sensitivity heightened by increased volatility in hardware supply chain costs.
Guidance Highlights: Q3 Adjusted Gross Margin Expected to Drop to 65.5%–66.5%
Cisco expects its adjusted gross margin for the third quarter of fiscal year 2026 (company's fiscal period) to be 65.5%–66.5%, representing a year-over-year decline of about 2.1–3.1 percentage points, with a larger decrease compared to the previous quarter; last fiscal quarter's non-GAAP gross margin was 67.5%, down from 68.7% a year earlier.
Cost Sources: Tariff Impact Included, Rising Memory Prices Amplify Pressure
The company also pointed out that its EPS and profit margin outlook have factored in the estimated tariff impact based on current trade policies. Additionally, multiple media and research reports indicate that demand for AI infrastructure has driven up global memory-related prices, with supply chains favoring high-margin data center products, thus squeezing the cost space for traditional hardware manufacturers.
Performance Is Not "Weak," But Market Bets on Profitability Stability
From the results, Cisco's latest quarterly revenue and demand side remain supported, and the company has provided a revenue range of $15.4–$15.6 billion and an adjusted EPS range of $1.02–$1.04 for the next quarter. However, with expectations of further profit margin declines, the market is more focused on whether price increases, renegotiating contracts, and investing in AI product development can offset cost impacts and maintain the "baseline" of gross margin.
