Why is Cisco Stock Up 20%: Q3 Earnings, Layoffs & The AI Trade Wall Street Just Woke Up To

On May 13, after the closing bell, Cisco Systems (NASDAQ: CSCO) put out one of the more remarkable earnings reports of 2026. Revenue hit a record high. Guidance blew past what analysts expected by nearly $1 billion. And then came the layoffs, which made investors more bullish, not less. The stock surged nearly 20% in pre-market trading, on track for its sharpest single-session rally since 2002. What's unfolding here isn't just a good quarter. It's a full-blown re-rating of what Cisco actually is.

Let's break down the Q3 numbers, the layoffs that the market cheered, the AI order surge nobody fully anticipated, analyst targets, and what Indian investors, who were already ahead on this one by the way, should think about next.

Cisco Q3 FY2026 Earnings: Every Number Came In Hot

Cisco posted record quarterly revenue of $15.84 billion, up 12% year-over-year. GAAP net income jumped 35%, and non-GAAP EPS hit $1.06, up 10% from $0.96 a year ago.

Source: Cisco Investor Relations

Networking, which is Cisco's largest segment, grew 25% to $8.82 billion, clearing the analyst consensus of $8.47 billion. Product revenue was up 17%, though services slipped 1%. 

One number to watch: non-GAAP gross margins came in at 66%, down 260 basis points year-over-year, pressured by elevated memory costs. Management has been addressing this with price hikes, but it's a metric worth tracking in Q4.

Did Cisco Beat Analyst Estimates? Yes. And Quite Convincingly.

Source: LSEG, StreetAccount, CNBC, Benzinga

This marked Cisco's 16th straight quarter beating revenue estimates. But the real shock was in Q4 guidance which is nearly $1 billion above what Wall Street had estimated. That kind of raise doesn't happen when a company is just doing fine.

Cisco Layoffs: Why Are Companies Like Cisco Cutting Jobs Despite Stellar Earnings?

CEO Chuck Robbins confirmed Cisco is cutting around 4,000 jobs which is under 5% of its global workforce, beginning May 14. Restructuring charges are expected to total up to $1 billion, with around $450 million hitting Q4.

This is actually a pattern playing out across Big Tech right now, and it has a name: profitable restructuring. Companies are no longer cutting jobs because they're bleeding money, they're cutting because AI is fundamentally changing the cost of getting work done. A task that once required a ten-person team can now be handled with two people and the right software stack. For a company Cisco's size, that math compounds fast. What Wall Street rewards today isn't headcount, it's margin expansion and capital efficiency. So when a company posts record revenue and announces layoffs in the same breath, investors don't panic. They cheer. Because it signals that management knows exactly where the next dollar of growth is coming from, and they're not going to let legacy org structure get in the way of it. Cisco isn't alone here; Meta, Google, Microsoft, and Salesforce have all done versions of this over the past 18 months. Strong results didn't protect those jobs. In many cases, strong results were the reason those jobs went. 

Think of it like an old multiplex chain shutting its VCD kiosk counters to go all-in on premium OTT; the short-term pain is real, but the strategic logic is hard to argue with. Robbins, writing in a company blog post, put it plainly: "We are making changes today that will result in the reduction of our overall workforce in Q4." The subtext: we know where the money is going next, and it's not where we were.

The AI Order Surge of Cisco: This Is the Real Headline

Year-to-date AI infrastructure orders from hyperscalers reached $5.3 billion which is already above Cisco's prior full-year target of $5 billion, with a full quarter still remaining. On the earnings call, management raised the FY2026 AI order target to $9 billion. That's 4.5 times what Cisco pulled in from AI infrastructure orders across all of FY2025.

In Q3 alone, AI orders from hyperscalers came in at $1.9 billion, against $600 million in the same quarter last year which marks a 217% jump. Cisco's Acacia optics business posted its best quarter ever, with more than $1 billion in orders, and is on track to grow over 200% for the full fiscal year. Networking product orders rose more than 50%, marking the seventh consecutive quarter of double-digit growth for the portfolio.

Here's the simple version: Nvidia makes the AI chips that everyone talks about. Cisco builds the highways those chips use to communicate. Every hyperscale AI data centre like AWS, Google, Microsoft, needs high-speed networking, optical connectors, and switching infrastructure. That's squarely Cisco's territory, and hyperscalers are now spending at a pace that surprised even Cisco's own management.

What Analysts Are Saying About Cisco?

Source: Benzinga, Yahoo Finance, TipRanks

These targets were set before the Q3 report. Given the scale of the beat and the guidance raise, a round of upward revisions from Wall Street is likely in the coming days, particularly from firms that were already leaning bullish.

Indian Investors Saw This Coming

Data from INDmoney tells an interesting story. Between April 14 and May 14, 2026, investment in Cisco shares on INDmoney grew 176.88% and search interest for the stock surged 170%. Indian retail investors had been steadily building positions well before the earnings pop. 

Those who acted on that momentum are now sitting on close to 20% gains from a single session.

What Should Investors Do?

Cisco's identity has shifted. It's no longer just the company that sells routers to large enterprises. It is actively becoming the network infrastructure backbone of the AI buildout, with record orders, five fresh hyperscaler design wins in a single quarter, and management raising its own targets aggressively.

That said, a nearly 20% overnight move and 30% plus year-to-date gains mean valuation has moved fast. Some consolidation after a jump like this is entirely normal, even healthy. Investors already holding CSCO might review position sizing. Those looking to enter may want to wait for the initial euphoria to settle before adding exposure. And the gross margin trajectory in Q4, given persistent memory cost pressures, is worth watching closely.

The long-term setup, though, looks increasingly interesting.