Cisco Shares Plunge 12% Amid Margin Pressure from Rising Memory Prices
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 2 days ago
0mins
Should l Buy CSCO?
Source: Newsfilter
- Stock Plunge: Cisco shares fell 12% on Thursday, marking the largest single-day drop in four years, primarily due to rising memory prices exerting pressure on the company's margins, reflecting market concerns about its future profitability.
- Memory Shortage Impact: The global shortage of memory, driven by strong demand for AI chips, has skyrocketed component costs, affecting Cisco and other tech companies, including Apple and Dell, which are also feeling the pinch from increased expenses.
- Financial Response: CEO Chuck Robbins stated during the earnings call that Cisco will raise prices, revise contracts, and negotiate terms to adapt to evolving component prices, aiming to control what can be managed amid rising costs.
- Declining Gross Margin: Although Cisco reported better-than-expected quarterly results, its product gross margin fell to 66.4%, down 130 basis points from the previous year, highlighting the challenges the company faces in managing rising costs.
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Analyst Views on CSCO
Wall Street analysts forecast CSCO stock price to rise
14 Analyst Rating
10 Buy
4 Hold
0 Sell
Moderate Buy
Current: 75.000
Low
76.00
Averages
89.36
High
100.00
Current: 75.000
Low
76.00
Averages
89.36
High
100.00
About CSCO
Cisco Systems, Inc. designs and sells a range of technologies that power the Internet. The Company is integrating its product portfolios across networking, security, collaboration, applications and cloud. The Company's segments include the Americas; Europe, Middle East, and Africa (EMEA), and Asia Pacific, Japan, and China (APJC). Its Networking product category represents its core networking technologies of switching, routing, wireless, fifth generation (5G), silicon, optics solutions and compute products. Its Security product category consists of its cloud and application security, industrial security, network security, and user and device security offerings. Its Collaboration product category consists of its meetings, collaboration devices, calling, contact center and platform as a service (CPaaS) offering. Its Observability product category consists of its full stack observability offerings.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Cisco's Share Performance: Cisco shares fell by 6.6% following the release of its quarterly earnings report.
- Gross Margin Concerns: The company's gross margin was reported to be below market estimates, raising concerns among investors.
See More
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- Dow Milestone: The Dow Jones Industrial Average crossed 50,000 for the first time this week, despite a 1.2% decline, marking a significant milestone that reflects long-term growth potential, although short-term investor sentiment is impacted by economic data.
- Strong Employment Data: Nonfarm payrolls increased by 130,000, significantly exceeding the forecast of 70,000, indicating labor market resilience; however, the CPI rose only 0.2% month-over-month, below the expected 0.3%, potentially raising concerns about sustained inflation.
- Earnings Volatility: Kraft Heinz announced a pause on its separation plan to focus on strengthening its existing business, indicating a commitment to future growth; conversely, Hims & Hers abandoned a new product launch due to regulatory pressures, leading to a sharp stock decline and highlighting market sensitivity to compliance risks.
- Tech Stock Movements: Alphabet, Google's parent company, tapped the debt markets by issuing long-term bonds to fund its AI investments, planning to spend between $175 billion and $185 billion by 2026, showcasing its ambition in technological innovation; meanwhile, Moderna's shares fell after its flu vaccine application was refused, underscoring regulatory challenges in the biotech sector.
See More
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- Healthcare Transformation Potential: CVS Health's leadership emphasizes AI's critical role in reshaping healthcare experiences, acknowledging early implementation stages while driving cost savings and growth, showcasing its strategic value in the healthcare sector.
- Enhanced Competitive Advantage: Hilton's CEO highlights that their modern tech stack provides a significant competitive edge, with opportunities in distribution and operational efficiency far outweighing risks, reflecting a positive outlook for the future.
- Infrastructure Investment: Cisco executives report that over 90% of customer support cases are now AI-driven, significantly enhancing customer satisfaction, indicating the company's crucial role in the infrastructure of the AI era.
- Semiconductor Market Growth: Applied Materials anticipates that investments in AI infrastructure will drive over 20% growth in its semiconductor equipment business in 2026, demonstrating the substantial impact of AI on industry revenues.
See More
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- Mixed Industry Results: Automakers reported mixed earnings, with some industrial stocks outperforming the broader market; however, overall equity demand remains capped, indicating a growing risk-off sentiment among investors.
- AI Panic Trade: The launch of a new freight efficiency platform by an AI firm has spooked markets, leading to sharp declines in traditionally resilient trucking and logistics stocks, as fears grow over the vulnerability of labor-intensive business models to automation.
- Real Estate Impacted: The real estate sector and other old-economy industries have also been hit, as traders express unease over potential AI-driven disruptions, further exacerbating market uncertainty.
See More
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- Logistics Stocks Hit: C.H. Robinson (CHRW) fell over 14% on Thursday due to AI fears, with a total decline exceeding 10% over the week, indicating a pessimistic outlook for the logistics sector's future.
- Brokerage Decline: Charles Schwab's stock dropped around 9% since Tuesday, with the CEO expressing disappointment over the sell-off during a Bloomberg TV interview, despite the company's efforts to leverage AI for client services.
- Real Estate Pressure: CBRE's shares plunged approximately 15.2% over the past week, primarily due to its latest earnings report missing expectations, reflecting market concerns about its profitability.
- Unity Software Plummets: Unity's stock dropped over 26% following its latest earnings release, with Q4 results beating expectations but disappointing first-quarter revenue guidance, leading analysts to believe the company needs time to restore investor confidence.
See More
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- Strong Job Growth: The U.S. economy added 130,000 nonfarm payrolls in January, significantly surpassing expectations of 70,000, with private employers contributing 172,000 jobs, marking the strongest gain since December 2024, despite a government payroll decline of 42,000 for the fourth consecutive month.
- Unemployment Rate Decline: The unemployment rate edged down to 4.3% from 4.4%, indicating a resilient labor market; however, the Bureau of Labor Statistics revised down prior payroll estimates by 898,000 jobs from April 2024 to March 2025, which investors largely viewed as historical data.
- Further Easing Inflation: Consumer prices rose 2.4% year-over-year in January, down from 2.7% and below forecasts of 2.5%, while core inflation eased to 2.5%, the lowest since March 2021, creating room for potential interest rate cuts by the Fed.
- Tech Sector Pressures: Despite favorable macroeconomic indicators, tech giants are facing profit compression concerns due to rising costs for memory and storage products, leading to a loss of over $500 billion in market capitalization among ten tech companies in a single session, reflecting market caution towards tech stocks.
See More
