For years, networking giant Cisco Systems (CSCO 0.39%) largely missed out on demand from hyperscale cloud companies. The company's proprietary approach, which bundled its hardware and software, didn't align well with hyperscalers' needs. Starting in 2018, the company began offering its hardware and software separately, enabling hyperscalers to use any software with its switches or run its software on third-party hardware.
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In the age of AI, the need for custom networking solutions has become even more critical. Cisco's Silicon One family of networking chips, introduced in 2019, has proven a key asset as the company taps into booming demand for AI infrastructure. Cisco took in $2.1 billion in AI infrastructure orders from hyperscalers during the second quarter of fiscal 2026, up from $1.3 billion in the first quarter. The company's embrace of disaggregating hardware and software is paying off, and its AI growth story is just getting started.
1 million Silicon One chips
Cisco shipped its one millionth Silicon One chip during the second quarter. These chips are used in both Cisco hardware and third-party hardware, and they've become a significant driver of the company's hyperscaler business. Cisco recently unveiled its G300 Silicon One chip, which delivers an incredible 102.4 Tbps of bandwidth.
For fiscal 2026, Cisco now expects to receive more than $5 billion in AI infrastructure orders and to recognize around $3 billion in AI infrastructure revenue from hyperscalers. The company is also having success with Neocloud and enterprise customers. Cisco took $350 million in AI infrastructure orders from these customers in the second quarter, and its pipeline now exceeds $2.5 billion.
Notably, Cisco's $5 billion forecast for hyperscaler orders does not include its newest products. The outlook excludes the G300, the P200 family of deep buffer routing processors, and some recently announced optics products. Cisco may not yet have visibility into orders for those products, but that could mean the company exceeds its $5 billion forecast if those newer products resonate with hyperscaler customers.
NASDAQ: CSCO
Key Data Points
Is Cisco an AI stock to buy?
Shares of Cisco tumbled last week following the second-quarter report. While the AI forecast was impressive, concerns about the company's gross margin and memory costs likely weighed on the stock. Memory chip prices are soaring, and Cisco has limited tools to mitigate those costs. The company has ramped up advanced purchase commitments, but there's only so much Cisco can do.
While the market is concerned about Cisco's rising costs, the company's AI infrastructure business is booming. With no sign that the AI data center buildout is set to slow anytime soon, Cisco looks like a solid pick-and-shovel AI stock to buy as hyperscalers pour unprecedented amounts of cash into AI infrastructure.
