Cisco Systems Sees AI Agents Fueling a Multi-Year Networking Boom

Key Points

• AI agents are driving a multi-year networking demand cycle because they consume significantly more bandwidth than human users and operate continuously. Cisco said hyperscaler AI orders reached $9.3 billion in the last fiscal year, including $4 billion in the fourth quarter.
• Cisco is seeing broad-based growth beyond hyperscalers, with campus and branch networking expanding about 20% for several quarters and companywide orders rising 40% in the latest quarter. The company estimates more than $100 billion in installed-base upgrade and refresh opportunities over the next several years.
• Security and networking are increasingly converging as AI raises cyberattack risks. Cisco expects high-single-digit security revenue growth in fiscal 2027, while pursuing an integrated technology stack spanning silicon, networking, software, security and observability.

Cisco Systems NASDAQ: CSCO executives said demand tied to artificial intelligence, infrastructure modernization and security is supporting what the company views as a multi-year networking growth cycle.

Speaking at the Goldman Sachs Communacopia + Technology Conference, President and Chief Product Officer Jeetu Patel said the shift toward AI agents is increasing demand for high-performance, low-latency networks and machine-scale security. He cited OpenRouter data indicating that agents consume about 60% of total inference capacity and said their token consumption has increased 14-fold since February.

“These agents tend to be far more consumptive on network bandwidth than humans,” Patel said, estimating that an agent uses about 450% more bandwidth than a human performing the same task. He said the growing use of agents, which can operate continuously, is creating sustained infrastructure requirements rather than demand limited to experimentation or model training.

AI Demand Across Customer Segments

Patel said Cisco sees opportunities across hyperscalers, neoclouds, sovereign clouds, service providers, enterprises and edge deployments. He said Cisco’s hyperscaler AI orders rose from nearly zero two years ago to $9.3 billion in the last fiscal year, including $4 billion in orders during the fourth quarter.

The company also said AI-related demand is extending into its traditional enterprise networking business. Patel said Cisco’s campus and branch networking business, which historically grew at roughly 3% to 4%, has expanded about 20% for several quarters. He attributed that growth to infrastructure refresh cycles, demand for lower-latency networking and heightened security concerns around aging equipment.

Chief Financial Officer Mark Patterson said networking has delivered double-digit growth for eight consecutive quarters and that companywide orders grew 40% in the latest quarter. Excluding hyperscalers, Patel said orders grew 25% in the fourth quarter.

Patterson said Cisco has identified more than $100 billion in upgrade and refresh opportunity involving its own installed base over the next several years. The company is also pursuing replacement opportunities involving competitors’ end-of-life and end-of-support products, he said.

Security and Modernization

Cisco executives emphasized the convergence of networking and security as AI expands the potential scale of cyberattacks. Patterson said companies increasingly view modernization as a security requirement, rather than a discretionary return-on-investment decision, because frontier AI models can identify and exploit vulnerabilities at machine scale.

Patel said Cisco’s advantage is its ability to integrate security capabilities into networking infrastructure. He highlighted the company’s smart switches, which combine firewall and switching functions, as well as security, observability and data capabilities intended to help customers manage AI environments.

For fiscal 2027, Patterson said Cisco expects high-single-digit growth in security revenue after low-single-digit growth in fiscal 2026. He said Splunk is expected to return to positive growth as the company laps a transition from on-premises deployments to cloud offerings. Cisco added 1,500 new customers for its newer security products in the fourth quarter, he said, while firewall revenue grew more than 30% for two consecutive quarters.

Services revenue is also expected to turn positive and reach mid-single-digit growth by the end of fiscal 2027, Patterson said. He attributed the anticipated improvement partly to services and subscription revenue attaching to recent hardware shipments over time.

Margin Outlook and Product Strategy

Patterson said Cisco has managed rising memory prices by passing much of the cost to customers, aided by demand conditions. The company’s fiscal first-quarter 2027 gross-margin guidance of 65% to 66% reflects some timing effects from hardware revenue being recognized upfront while associated software subscriptions and services are recognized over time, he said.

While Cisco expects a slight gross-margin headwind through fiscal 2027, Patterson pointed to operating-margin improvement. In the fourth quarter, gross margin increased about two percentage points from a year earlier, while operating expenses declined nearly four percentage points as a share of revenue, resulting in a record operating margin, he said.

Patel said Cisco has reorganized its product approach into a vertically integrated, co-designed technology stack spanning silicon, photonics, systems, software, security, observability, data and management platforms. He said the company expects to be fully independent of merchant silicon providers by 2029.

The company is targeting networking for both scale-out AI systems within data centers and scale-across systems linking data centers over long distances. It is also working with NVIDIA and Supermicro on “Secure AI factories” that combine servers, networking, security, observability and data-management capabilities.

Capital Allocation

Patterson said Cisco’s capital-allocation priorities remain unchanged: investing to support organic and inorganic growth, protecting and increasing its dividend, offsetting dilution through share repurchases and returning excess cash to shareholders. He said the company returned nearly all of its free cash flow to shareholders in the last fiscal year.

Looking ahead, Patel said Cisco plans to continue investing across networking, security, observability, data platforms, silicon and photonics while maintaining an open ecosystem that can include partnerships with competitors. Patterson said he is more optimistic about Cisco’s opportunity set and ability to capture it than at any point in his 27 years with the company.

About Cisco Systems (NASDAQ:CSCO)

Cisco Systems, Inc is a global technology company that provides networking, cybersecurity, collaboration, observability and other information technology solutions. Its offerings include routers, switches, wireless networking equipment, data center infrastructure, security platforms, unified communications tools and software designed to help organizations connect, manage and protect their digital environments.

Cisco serves businesses, government agencies, educational institutions, telecommunications providers and other organizations worldwide.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.