QS Research · Michael Burry's Scion Capital analyst template · 2006
CISCO SYSTEMS, INC. (CSCO)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case 0% · downside -25% · upside +14%
Using section 13's FY2026 net-income base of $13.27B (N15), not FCF (N18 is contaminated by loan/customer funds), the stated 28.0x P/E (N29) equals the $371.02B market cap (N9) and today's $94.11 price (N1), so my base case is 0%. At 21x—IBM's 20.9x level—the same $13.27B is $278.7B, -24.9%, and at 32x it is $424.6B, +14.4%; the rule therefore does not meet long (+30% base) or short (-30% base). The market is not missing the record FY2026: revenue $63.33B, EBIT $15.37B and AI orders of $9.3B are visible, but it is paying a full 28.0x while gross margin compresses and operating cash flow is flat at $14.18B. I would watch, not own, because the downside is larger than the upside and the catalyst path is dated but unproven.
Key numbers
- Share price: $94.11
- Market cap: $371.02B
- 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): 28.0x
- Price / book: 7.38x
The 15 boxes
- ✓ 1. Long-form business notes
Cisco sells networking hardware and software plus a flat services stream: FY2026 revenue was $63.33B versus $56.65B in FY2025 (+12%), with product revenue +16% to $48,295M and services flat at $15,030M (S22, S24). The growth is concentrated: Networking product revenue rose 22% to $34,668M, driven by AI Infrastructure solutions including Cisco Silicon One based systems and optics, while Security (+2%), Collaboration (+4%) and Observability (+4%) were near-static. Total gross margin slipped to 64.5% from 64.9% on negative product mix and memory costs, but operating income rose 31% to $15,368M (24.3% of revenue) as operating expenses fell to 37.7% of revenue from 41.1%. FY2026 net income of $13.27B and pre-tax income of $16.01B include a $1,393M net investment gain (of which $1,409M unrealized on non-marketable equity securities) that sits below the operating line, and the FY2025 comparison was depressed by a $720M one-time tax benefit.
- ✓ 2. Competitive advantage
Sources show Cisco with real scale and portfolio breadth — FY2026 revenue $63.33B, gross profit $40.86B and operating income $15.37B — but the 10-K also says it competes with numerous vendors, barriers to entry are relatively low, and some rivals may have greater resources. The margin record is not a straight line: operating income fell from $15.03B in FY2023 to $11.76B in FY2025 before rebounding to $15.37B in FY2026. The advantage appears to be scale, broad product/services relationships and company-claimed platform integration rather than an explicit structural moat quantified in the sources.
- ✓ 3. 10-Q takeaways
Q3 FY2026 (quarter ended 2026-04-25) was a strong top-line quarter: revenue $15,841M, up 12% on product revenue +17% and services -1%, with Networking +25% on AI Infrastructure and Campus Networking. Growth came at a price on gross margin, down 2.0 pts to 63.6% (product 61.9%, -2.5 pts) on mix and higher memory costs, but opex leverage lifted operating margin to 25.0% (+2.4 pts) and diluted EPS to $0.85 (+37%). Working capital is the watch item: inventories jumped to $4,708M from $3,164M at FY2025 year-end on memory/supply commitments, and nine-month operating cash flow fell to $8,791M from $9,959M. Buybacks continued ($4,604M in 9M FY2026) and debt rose to $31,303M from $28,093M.
- ✓ 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
- ○ 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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