Cisco surges on Q3 AI demand, while cutting 4,000 jobs in AI overhaul

Cisco Systems (CSCO) stock has surged by double-digits since reporting fiscal third quarter results in Wednesday's extended hours, topping Wall Street expectations with revenue of $15.84 billion and adjusted earnings of $1.06 per share.

This comes after the cloud operator laid off 4,000 workers as part of a new AI-focused restructuring.

Hennion & Walsh CIO Kevin Mahn and Yahoo Finance Senior Reporters Ines Ferré and Brooke DiPalma take a closer look at the AI demand propelling Cisco, the cloud operator's outlook, and its recent job cuts.

What are your thoughts on it? Because if we would have had this conversation three three days ago, I don't think anybody was looking for this quarter from Cisco.

No, I think Cisco is clearly benefiting from the surge in AI infrastructure spend, and they're leaning more and more into their AI data center networking solutions. and they're wise to. That's why we've seen their potential sales as it relates to AI data center solutions potentially reach $9 billion as you correctly point out, Brian, by the end of this year.

Is that sustainable? No, but for the next two to three years, they're going to clearly benefit from it and that's why we're seeing the surgeon and their stock prices. What it also showed me was clearly they employ a lot of employees because if 4 to 5% of their staff is being cut, that means they had 80,000 employees. Perhaps they were a little bit bloated to begin with.

Yeah, Cisco's been built up, Kevin over the years through many random acquisitions. so I'm not surprised they're cutting the fat there, but isn't this activity we're seeing at Cisco, Kevin? Is this is isn't this like typical bubble activity?

It could be. It could be because anything that's touching AI infrastructure right now, whether it's construction companies like MCore or ACOM, whether it's the heating and cooling companies like a Modine manufacturing or Vertive, power related solutions, whether they be small modular reactors or even the utility plays, all of those companies that are benefiting.

But if Jensen Wong is right, Brian, and between three to four trillion is spent on AI infrastructure by the end of this decade, perhaps there's more growth opportunities now for those companies provided that they have strong balance sheets and good entrance management teams.

And as this is uh old AF tech day in the markets. Of course, you know what AF stands for and I'm sure many of our viewers around the world know what it stands for too. But if you are out there buying Cisco, you're chasing Cisco today, you have to take a look at old AF name like an IBM. Uh, that quarter didn't get loved a few weeks ago, but they came out and said, you know what, hey guys, we got a ton of AI backlog, too.

That's right. I mean, this is the highlight that all these companies are now saying these, uh, old or legacy companies that have been around, uh, during the dotcom era as well. I mean, Cisco had gone to an all-time high and then went down with the rest of the bubble as well, but now is at back at all-time highs. So look, they are leaning into AI as was just mentioned. I mean, all of their offerings is now everything is AI induced or AI fueled, and this is what is driving these stocks higher.

There's so much enthusiasm over AI. JP Morgan Private Bank just came out with their 2026 mid-year outlook, and they were saying the markets are just too pessimistic when it comes to AI because this is going to structurally change everything. And and and what they're saying is is you don't want to be in cash, you want to be in invested in companies that are involved in the infrastructure, involved in the in the power uh upgrade, everything that all touch points that have to do with AI, these are the ones that are going higher.

Brooke, it's just another big large tech company out here blaming AI for firing human beings. and I think my man Max over at the firm really summed it up nicely. Companies like Cisco, led by Chuck Robbins and their CFO and all the other executives through the years, they just hired too many people and they didn't see the speed at which this AI transformation is taking over.

I think that Kevin also had a great point about just the bloat, the amount of employees that this company had had that many investors likely don't realize, but we've talked about this many times. Cisco not alone in taking a good look at their workforce and identifying places that essentially could be replaced by AI.

Cisco's not alone, we also have Amazon, we have Oracle, we have Meta, we have Block, all these different companies who are taking a look at their workforce and announcing these pretty significant layoffs. It definitely is jarring, but as you think about maybe that younger person where the unemployment rate is higher and they're looking to get into this workforce, I think that this is a clear sign that you need to be able to embrace this technology and use it to your advantage, especially in this in this sort of labor environment, Brian.

Yeah, learn how to code or you'll be out there pushing a hot dog cart. I mean that's just the reality of it. Kevin, you know, where should the investors, where should investors place more attention? Yesterday we were we were talking about how uh inflation is accelerating. We might get a a rate hike. Uh I think uh the Fed's Collins was out there talking about the possibility of a rate hike. Today we got a Cisco blowing the water, blowing the doors off of their earnings and their guidance. Like where where should investors be taking their cue from today?

I think they need to continue to follow the money, Brian to find investment opportunities. One area that we've highlighted already is AI infrastructure. Another area, Aerospace and defense, and yet a third area relates to healthcare as it relates to these innovative healthcare solutions coming from small cap biotech companies.

And you know why I highlight those three areas? Because each one of those areas has continued to accelerate despite oil prices being above $100 a barrel, despite accelerated inflationary pressures, despite the ongoing operation every fury that's taking place overseas.

If you can kind of divorce yourselves from all of that noise, and it's legitimate headline noise, there are still underlying growth opportunities in this market if, in fact, you continue to follow the money in terms of where all the money has been spent, is being spent, and will likely continue to be spent for the balance of this decade.