Analyst(s): Ron Westfall
Publication Date: February 14, 2025
Strong momentum in AI infrastructure and continued demand from webscale and enterprise customers bolstered Cisco’s Q2 FY 2025 results. The company remains focused on expanding its AI and security offerings to drive future growth.
What is Covered in this Article:
- Cisco’s Q2 FY 2025 Financial Highlights
- Surge in AI Infrastructure Orders and New Product Launches
- Observability and Security Growth Driven by Splunk Integration
- Networking Business Performance and Maturing Growth Profile
- Impact of Tariffs and Federal Spending on Near-Term Outlook
- Guidance and Long-Term Growth Opportunities
The News: Cisco Systems (NASDAQ: CSCO) announced its Q2 FY 2025 financial results, with revenue reaching $14 billion, 0.8% above consensus estimates and reflecting a 9% year-on-year (YoY) increase. The growth was driven by product revenue rising 11% YoY and service revenue up 6% YoY. Excluding Splunk’s contribution, total revenue declined by 1% YoY. Annual recurring revenue (ARR) came at $30.1 billion, up by 22% YoY. Non-GAAP operating income totaled $4.9 billion, 3.6% above consensus, representing a 15% YoY increase, with a non-GAAP operating margin of 34.7% (Q2 FY 2024: 33%). Non-GAAP net income stood at $3.8 billion, 3.2% above consensus, growing 6% YoY, while non-GAAP diluted earnings per share (EPS) was $0.94, 3.4% above expectations and up 8% YoY. Total remaining performance obligations (RPO) grew by 16% YoY to $41.3 billion.
“Cisco’s strong quarterly results were driven by accelerating customer demand for our technology,” said Chuck Robbins, CEO of Cisco. “As AI becomes more pervasive, we are well positioned to help our customers scale their network infrastructure, increase their data capacity requirements, and adopt best-in-class AI security.”
Cisco Q2 FY 2025 Earnings Benefit from AI Infrastructure & Security Growth
Analyst Take: Cisco’s Q2 FY 2025 results highlight its strategic focus on expanding its AI infrastructure and strengthening its security solutions portfolio. The company delivered solid execution across key business areas, driven by double-digit growth in product orders and rising demand for AI-related innovations. Such results, combined with several high-impact product launches, position Cisco to seize emerging opportunities in the evolving tech landscape.
AI Infrastructure: Strong Momentum and Expanding Opportunity
Cisco’s AI infrastructure strategy gained significant traction in Q2 FY 2025, with AI-related orders reaching $350 million for the quarter and $700 million year-to-date. The company is well on track to surpass $1 billion in AI infrastructure orders this fiscal year, driven by high demand from webscale customers. Notably, three of the top six webscale clients reported triple-digit order growth, reflecting these cloud service leaders’ heavy investments in scaling AI infrastructure. Such progress is laudable, as it shows there is a substantial runway for Cisco to grow its AI infrastructure business, especially in the context of delivering nearly $54 billion in overall FY 2024 revenue.
To meet this rising demand, Cisco introduced several innovations during the quarter. One standout is the Cisco AI POD, which integrates hardware and software to simplify AI deployments, reducing both implementation time and operational risks. Early customer adoption across key verticals signals robust market interest. Another critical addition is HyperFabric, a high-speed connectivity solution designed to optimize AI workloads by minimizing latency and enhancing performance. Together, AI PODs and HyperFabric offer customers a comprehensive solution for deploying scalable AI infrastructure.
Rounding out this portfolio is the April 2025 launch of 800G Nexus switches powered by Cisco’s 51.2 terabit Silicon One chip. These switches are tailored to address the bandwidth and low-latency demands of AI cloud buildouts, enabling enterprises and webscale clients to handle ever-growing data volumes while expanding AI capabilities. With its expanding portfolio and strong order momentum, Cisco is positioned as a key enabler of high-performance AI environments.
In my view, Cisco can strengthen its overall AI infrastructure proposition by putting more portfolio development and sales and marketing emphasis on its data management assets and capabilities. This includes spotlighting why data management optimization is integral to attaining the best AI infrastructure and AI workload outcomes. As such, Cisco can combine and offer customers the cloud/hybrid, security/data protection, analytics/insights, data center/infrastructure, storage, workforce planning, and training/skills development which are critical to meeting the unique data management requirements for each customer.
Security and Observability: Dual Growth Drivers
Cisco’s security and observability segments saw impressive growth in Q2 FY 2025, fueled by the successful integration of Splunk and rising demand for advanced security solutions. Security revenue soared by 117%, primarily driven by contributions from Splunk, SASE, and network security products. Even excluding Splunk’s impact, security revenue grew 4%. Observability revenue also jumped 47%, with 3% organic growth. Security orders more than doubled, while new solutions like Cisco Secure Access and XDR quickly gained traction, surpassing 1,000 customers and one million enterprise users within their first year.
Splunk continues to be a key growth driver. The release of Splunk Enterprise Security 8.0, which integrates Cisco’s Talos threat intelligence, enhances threat detection capabilities. New offerings such as Splunk on Azure and Splunk Federated Analytics expand observability for hybrid cloud environments, giving IT teams real-time insights for optimizing security and performance.
On the innovation front, Hypershield, Cisco’s latest security platform, is already being adopted by major enterprise customers, including two Fortune 100 companies. Additionally, AI Defense, introduced in Q2, addresses growing concerns about AI-driven threats and has generated significant early interest among enterprise clients. These advancements position Cisco as a strong contender in the evolving cybersecurity and observability markets, offering customers integrated solutions to manage both security risks and performance challenges.
Networking Segment: Mixed Performance as Growth Matures
Cisco’s Networking segment, traditionally the foundation of its product portfolio, showed signs of market maturity in Q2 FY 2025. While overall networking revenue declined by 3% year-over-year, the picture wasn’t entirely bleak. Growth in wireless and switching was offset by a decline in servers. Yet, networking product orders still grew at a double-digit rate, driven by enterprise routing, webscale infrastructure, and industrial IoT applications.
Campus switching saw a boost from enterprises embracing Wi-Fi 7 access points, driven by increasing return-to-office policies. Meanwhile, demand for industrial networking products surged over 50%, reflecting heightened investment in AI-powered robotics and industrial security solutions. Although data center demand remained strong among large cloud providers, this growth was primarily tied to AI infrastructure buildouts rather than broad-based networking expansion. Overall, the results reflect a maturing networking business with bright spots in IoT and AI-driven infrastructure.
I find that Cisco’s portfolio push focused on compute is strategically adept as the company needs to play to its existing solution and channel strengths in positioning itself as a key player in the AI infrastructure space, supporting both enterprises and hyperscalers in their AI journeys and initiatives. This encompasses delivering high-performance, low-latency, and energy-efficient networking solutions purpose-designed for AI workloads alongside providing the right-sized intra-GPU communications fabrics key to optimizing and scaling data transfer demands between GPUs in AI clusters. Moreover, I find that AI POD solutions aimed at enterprises position Cisco to fulfill enterprise demand for AI turnkey solutions, backed by AI expertise to guide and accelerate their on-premises and private cloud adoption of organization-wide AI that meets their unique needs.
Navigating Tariffs and Spending Uncertainty
Despite solid performance, Cisco faces potential headwinds from evolving trade policies and shifting government spending priorities. Proposed U.S. tariffs on mainland China imports and steel and aluminum from Canada and Mexico could increase supply chain costs. While Cisco’s supply chain team has successfully mitigated much of the impact of previous tariffs, the evolving situation introduces a degree of uncertainty.
Additionally, reduced U.S. federal spending poses a challenge. Although government orders make up less than 10% of Cisco’s total business, the majority of that exposure lies within the Department of Defense (DoD), where demand has remained relatively stable. Civilian federal spending, however, is more volatile, with initial executive orders causing temporary delays in some large deals. While demand for AI infrastructure and security solutions remains strong, these external factors could lead to short-term fluctuations in performance.
Outlook: Positioned for Long-Term Growth
Looking ahead, Cisco’s Q3 FY 2025 guidance projects revenue between $13.9 billion and $14.1 billion, with a non-GAAP operating margin of 33–34% and non-GAAP EPS ranging from $0.90 to $0.92. For the full year, the company expects revenue of $56-$56.5 billion and non-GAAP EPS between $3.68 and $3.74.
Overall, I believe the integration of Splunk will continue driving growth in the security and observability segments, while AI PODs and HyperFabric provide an edge in enterprise and webscale AI deployments. The upcoming launch of 800G Nexus switches is well-positioned to enhance next-generation networking for AI cloud environments. With increasing demand for AI-driven infrastructure and security solutions, Cisco’s diversified portfolio and strategic investments offer a solid foundation for sustained long-term growth.
Read the full press release on the Cisco website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
Cisco Q1 FY2025 Earnings: Security and AI Drive Growth
Cisco Ups the AI Ante Launching New Plug-and-Play Solutions with NVIDIA
Cisco AI Defense: Checking the Reckless Charge Toward AI
Author Information
Ron is an experienced, customer-focused research expert and analyst, with over 20 years of experience in the digital and IT transformation markets, working with businesses to drive consistent revenue and sales growth.
He is a recognized authority at tracking the evolution of and identifying the key disruptive trends within the service enablement ecosystem, including a wide range of topics across software and services, infrastructure, 5G communications, Internet of Things (IoT), Artificial Intelligence (AI), analytics, security, cloud computing, revenue management, and regulatory issues.
Prior to his work with The Futurum Group, Ron worked with GlobalData Technology creating syndicated and custom research across a wide variety of technical fields. His work with Current Analysis focused on the broadband and service provider infrastructure markets.
Ron holds a Master of Arts in Public Policy from University of Nevada — Las Vegas and a Bachelor of Arts in political science/government from William and Mary.
