Cisco Systems Inc (Cisco) (NASDAQ: CSCO) released its fiscal fourth-quarter earnings report on Wednesday after the market close, with revenue surging 18% year-over-year to $17.3 billion, surpassing the analyst consensus estimate of $16.8 billion. Adjusted earnings per share came in at $1.22, exceeding the average forecast of $1.17.

The networking giant forecast AI-related sales of $7.5 billion for the current fiscal year, a projection that disappointed investors. Over the past year, the world's largest network equipment supplier has accumulated $9.3 billion in AI-related orders, but the market had anticipated a higher conversion of these orders into revenue. The stock fell 4.04% in after-hours trading.

According to Cisco's statement, AI business sales are expected to account for roughly 10% of total revenue in fiscal 2027, which is projected to be between $72.2 billion and $73.4 billion. This marks the first time Cisco has provided a full-year AI revenue forecast, and analysts questioned how this figure aligns with the $4 billion in AI-related orders booked in the quarter ending July 25 alone.

David Vogt, an analyst at UBS, told management during the earnings call: "This looks very, very conservative to me." The stock, which closed at $123.88 in regular New York trading, fell about 4% in after-hours trade. Over the past three months, the shares had gained nearly 25% as investors anticipated that Cisco's AI strategy would drive sales growth.

Cisco faces high market expectations that it will benefit from the global wave of data center construction for AI systems. The company has been restructuring its business to secure more contracts in the AI boom, but it also faces increasingly fierce competition from rivals such as Broadcom Inc (Broadcom) (NASDAQ: AVGO) and Hewlett Packard Enterprise Co (Hewlett Packard Enterprise) (NYSE: HPE).

CEO Chuck Robbins said on the conference call that Cisco achieved approximately $4 billion in AI revenue in fiscal 2026, despite total orders exceeding $9 billion during the same period. "These are nonlinear orders, very large in scale, and typically placed far in advance," he said, describing the AI sales guidance as "a good and prudent forecast for the full year."

The conservative tone of the AI guidance overshadowed Cisco's above-consensus outlook for first-quarter sales and profit. Revenue for the quarter ending in October is expected to be between $18.0 billion and $18.2 billion, compared to the average analyst estimate of $16.8 billion. Adjusted earnings per share are projected to be between $1.32 and $1.34, also well above expectations.

Despite Cisco's focus on supplying AI data centers, its sales remain heavily reliant on traditional businesses. Earlier this year, the company announced a restructuring to sharpen its focus on the AI market, estimating that related layoffs would incur up to $1 billion in severance and other one-time expenses.

In the fourth fiscal quarter, Cisco's security business revenue reached $2.23 billion, up 14% year-over-year. CFO Mark Patterson noted that AI models are increasingly capable of identifying and exploiting network vulnerabilities, which will drive further growth in the security business. "From that perspective, it will push companies to shift budgets from other areas of the organization to IT departments to actually get this work done," he said.