Cisco’s AI Data Center Business Gains Traction With Hyperscalers

**SPEAKER_1** (0:00)
So to help us preview the quarter, we're joined by Ron Westfall, VP of Networking and Infrastructure at HyperFRAME Research. Ron, thank you so much for joining us today. Cisco has been really one of these big AI and beneficiary stories in networking specifically. So as we go into this report, what are the most important metrics that you're seeing that you think should be on our radar?

**Ron Westfall** (0:21)
Yes, I think Cisco definitely has the momentum and portfolio mix to not only meet the expectations for the new earnings report later today, but also to continue that through the end of the year as well as beyond 2026
The key considerations are that it's AI infrastructure momentum and order acceleration. Basically, Cisco within AI data centers is really gaining a lot of pipeline momentum. For example, it's forecasting just that AI data centers up to $9 billion after getting $5.3 billion in orders through Q3. And that $9 billion is actually an increase from a $5 billion expectation. So that's almost a doubling of, okay, we're getting so much order expectations in AI infrastructure alone. This is definitely going to carry through in terms of pulling through Silicon One networking and architectures, as well as its optical technologies, especially amongst the hyperscalers that are aggressively building out AI capabilities.
Also, the other star is on the enterprise size. In fact, Cisco is really the leader when it comes to enterprise networking. And I believe they will have the capability to not only defend that market position, but to expand it. And the reason is, is that the enterprise upgrade cycles be accelerated by AI, but also its pre-catalyst 9000 base is due for replacement. And that's going to create new opportunities to move new enterprise portfolio switches and also Wi-Fi technology. And this is aligning with the ongoing upgrade to Wi-Fi 7 across enterprises. So all these things are firing Cisco's advantage, and Cisco is well positioned to take advantage of it.

**SPEAKER_3** (2:11)
Yeah, Ron, I mean, you're really just highlighting the tremendous amount of AI momentum that many of these companies are having at the moment, and Cisco right there for it. Hyperscalers are a huge part of the story. You mentioned enterprise spending as well. Is there any other parts beyond maybe those two big verticals that can drive more of this AI momentum?

**Ron Westfall** (2:34)
Yes, I think Cisco also has a strong security proposition. In fact, while the security segment was somewhat flat in Q3, or that's the expectation I see, what is going on is that security is just integral, will become increasingly native to these AI data center builds as well as certainly the enterprises, as they have to negotiate how to optimize their security defenses against an expanded attack surface. That is, by implementing all these AI capabilities, they have to make sure that the data that is managed by them is not compromised when it interacts with a large language model, as well as all the other implementations that are required to optimize AI across the enterprise data stack.
I think this is something that will not only pull through the security capabilities, but also the Splunk capabilities. And why the Splunk technology has become increasingly important integral, is the fact that it provides the telemetry, or the intelligence and smarts to know what is going on across the entire network and having visibility into the AI engines that are interacting with the enterprise technology. That includes naturally the large language models, but also agentic AI capabilities, as well as ongoing physical AI builds and so forth. So this is all really playing to Cisco's favor, the fact that their portfolio can enable all of these capabilities for enterprises as well as hyperscaler and all the other partners across their ecosystem.

**SPEAKER_1** (4:11)
Okay. So security growth has lagged the strength that we've seen in networking. So what signs would indicate that the Splunk acquisition is starting to actually meaningfully accelerate Cisco's broader revenue that we're starting to see actually be accretive, of course, to its top line.

**Ron Westfall** (4:25)
Yes, I think we're going to see that, first of all, in the fiscal year 27 full year guidance. This will be a deciding factor. And why that's going to be, I think, a positive for Cisco is the fact that heading into this report, they're already up 25 percent year to date. So I think what we saw in Q3, specifically to security and some of these Splunk related technologies is basically, I would say an aberration. These will definitely start getting a lot of growth upside over the remainder of the year and through, I would say beyond 26
Other reasons is that really the telemetry is going to increasingly be monetized across a high margin recurring software revenue. So I think that's what we're going to see is the fact that when it comes to annual revenue derived from software, that is going to increase more. And finally, it's also, I think, plays into the fact that the total addressable market for Cisco is, I would say, about $200 billion over the next three years or so.