QS Research · Michael Burry's Scion Capital analyst template · 2006
CISCO SYSTEMS, INC. (CSCO)
As of 2026-11-08 · 13/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case none · downside -26% · upside +31%
Using section 13's FY2026 base, today's 27.9x P/E on $13.27B net income gives about $370.0B of equity, essentially today's $370.01B market cap, or 0%. Downside at 20.7x-22.2x IBM/HPE P/E is $274.7B-$294.6B of equity, or -26% to -20%; upside at 33.4x-36.6x UI/AVGO P/E is $443.2B-$485.7B, or +20% to +31% (N32, N16, N9, S1). The market is pricing a margin and sector de-rating, not the FY2026 revenue +12%, GAAP EPS +31%, or FY2027 guidance of $72.2-73.4B revenue and $5.05-5.11 non-GAAP EPS (S100). But at 27.9x P/E the stock is mid-peer, not cheap enough for a +30% base case, and the downside to legacy-IT multiples is still -20% to -26%. I would watch, not buy, until either the multiple falls toward the downside band or gross margin and AI revenue conversion prove the earnings base.
Key numbers
- Share price: $93.85
- Market cap: $370.01B
- Latest financial period: FY Jul 2026 to Jul 25, 2026
- Revenue (FY Jul 2026): $63.33B
- EV / EBITDA (FY Jul 2026): 23.7x
- P/E (FY Jul 2026): 27.9x
- Price / book: 7.36x
The 15 boxes
- ✓ 1. Long-form business notes
Cisco is a networking-led hardware and software seller with a services attach: FY2026 revenue was $63.325B, +12%, split $48.295B product (+16%) and $15.030B services (flat), with Networking product revenue of $34.668B (+22%) the growth engine on AI Infrastructure (Cisco Silicon One systems and optics). Gross margin was 64.5% (64.9% FY2025) and operating income $15.368B, 24.3% of revenue and up 31%, while FY2026 other income of $1.245B was almost entirely a $1.409B non-marketable equity gain, i.e., not operating. The mix has shifted versus the FY2021 report, which framed the portfolio as Infrastructure Platforms, Applications, Security and Services; FY2026 reports Networking, Security, Collaboration and Observability, with revenue up from $49.82B (FY2021) to $63.33B. Cash generation is large ($14.177B operating cash flow FY2026) but includes financing-receivable timing, so earnings rather than the company's $12.767B free cash flow figure is the valuation base.
- ✓ 2. Competitive advantage
Cisco has scale and a broad portfolio: FY2026 revenue was $63.33B, gross profit $40.86B and operating income $15.37B, and calculated gross margin stayed around 62.5%-64.9% over FY2021-FY2026. But the FY2026 10-K describes numerous competitors, relatively low barriers to entry, price-focused competition from Asia/China and rivals with greater resources; operating margin fell from 27.1% in FY2022 to 20.8% in FY2025 before recovering to 24.3% in FY2026. The computed risk-factor diff shows 36 new or rewritten paragraphs, including competition in AI, cloud and cybersecurity from companies of all sizes. Net: the sources show some scale and breadth advantages, but not clear durable pricing power.
- ✓ 3. 10-Q takeaways
Q3 FY2026 (quarter ended April 25, 2026) was a record quarter: revenue $15,841 million, up 12% year over year, with product revenue up 17% and services down 1%, driven by Networking +25%. Gross margin fell 2.0 points to 63.6% on product mix and higher memory costs, but operating margin rose 2.4 points to 25.0%, GAAP operating income was $3,960 million (+24%) and GAAP EPS $0.85 (+37%); the nine-month GAAP EPS gain of 24% is flattered by the absence of the $720 million tax benefit booked in the first nine months of fiscal 2025. Guidance is numeric and above the quarter's run rate (Q4 FY2026 revenue $16.7-16.9 billion, non-GAAP EPS $1.16-1.18; FY2026 revenue $62.8-63.0 billion, GAAP EPS $3.16-3.21), with management raising FY2026 AI infrastructure expectations. Cash and investments were $16.6 billion, inventories $4,708 million (up $1.5 billion from July 26, 2025) and total debt $31,303 million; nine-month operating cash flow fell to $8,791 million from $9,959 million, so earnings, not free cash flow, are the basis for valuation here.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ✓ 11. Impression of the shareholder letter
Filled; members read this box.
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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