Cisco Systems experienced a significant 6.29% decline in after-hours trading on Wednesday, following the release of its fiscal second-quarter earnings report. The networking giant reported financial results that exceeded analyst expectations on both earnings and revenue, yet the stock moved sharply lower in extended trading.

The company posted adjusted earnings of $1.04 per share, beating the consensus estimate of $1.02 per share. Revenue for the quarter reached $15.3 billion, also surpassing Wall Street expectations of $15.11 billion. Cisco further raised its full-year outlook, now expecting adjusted earnings between $4.13 and $4.17 per share on revenue of $61.2 billion to $61.7 billion, up from previous guidance.

Despite these positive results, investors were disappointed by Cisco's gross margin performance and outlook. The company's adjusted gross margin of 67.5% came in below analyst estimates of 68.14%, and its forecast for the current quarter calls for margins between 65.5% and 66.5%, significantly below the expected 68.2%. The tepid margin outlook overshadowed strong AI momentum, including $2.1 billion in AI infrastructure orders from hyperscaler customers during the quarter, up from $1.3 billion in the previous period. Cisco attributed the margin pressure to rising memory chip prices across the tech industry, which is squeezing profitability despite robust demand for AI infrastructure.