Networking giant Cisco Systems Inc. delivered better-than-expected profit and revenue in its fiscal first-quarter earnings results today and offered solid guidance for the current period, demonstrating progress in its efforts to capture more artificial intelligence spending.

The encouraging results helped boost Cisco’s stock by more than 7% after-hours, adding to a gain of just over 3% during the regular trading session.

The company reported earnings before certain costs such as stock compensation of exactly $1 per share, edging past Wall Street’s target of a 98-cent-per-share profit. Revenue for the period rose 8% from a year earlier, to $14.88 billion, surpassing analysts’ consensus estimate of $14.77 billion. The beat helped to drive an increase in Cisco’s overall profit, with net income rising to $2.86 billion, up from $2.71 billion in the year-ago quarter.

Cisco Chair and Chief Executive Chuck Robbins (pictured) said the solid results suggest the company is on track to deliver its strongest year in history in terms of revenue and profit. “The widespread demand for our technologies highlights the critical role of secure networking and the value of our portfolio as customers move quickly to unlock the potential of AI,” he said.

The results were the fourth consecutive quarter of revenue growth for Cisco, following a period during which it had suffered four successive quarters of decline. A year ago, the company had struggled with economic uncertainty that weighed on customer spending, especially in the case of government agencies. But the last year has been a different story, with Cisco vying to capture a share of the increased spending on data center infrastructure to fuel enterprise AI workloads.

Cisco has been busy updating much of its networking gear, including its routers and network switches that are required to connect data center server racks in enormous clusters to support complex workloads. There’s a real and growing demand for this kind of infrastructure, although the company faces competition from rivals such as Broadcom Inc., Hewlett Packard Enterprise Co. — which acquired former Cisco rival Juniper Networks Inc. — and Arista Networks Inc.

Still, Cisco has been doing well and remains the overall leader in the networking segment. Its main business unit, which spans network switches, routers and the software used to manage them, racked up more than $7.7 billion in revenue during the most recent quarter, up 15% from a year earlier. That surpassed Wall Street’s expectations, with analysts looking for sales of just $7.47 billion.

During the quarter, at Cisco’s annual partner summit, it unveiled various new products and services, including the Cisco Unified Edge platform, which aims to support AI workloads at the network edge and modernize how companies deploy and secure distributed applications. In addition, the company also announced the new Cisco N9100 network switch, which it described as a pivotal enabler for next-generation AI workloads in the data center. The N9100 runs Cisco’s Nexus and SONiC operating systems and is built on Nvidia Corp.’s Spectrum ASIC. By combining its software and networking stack with Nvidia’s high-performance silicon, it provides greater flexibility, scalability and customizability for AI-native workloads, ensuring they can run more efficiently across the compute, networking and storage layers.

Cisco has high hopes for the new switch. Although it’s too early to tell how successful it will be, the company is certainly making traction with its most important market, which it calls “hyperscale customers.” In a conference call with analyst, Cisco Chief Financial Officer Mark Patterson said AI infrastructure orders from this customer segment reached $1.3 billion during the quarter, reflecting a “significant acceleration” from the year before. “We have a multiyear, multibillion-dollar campus refresh opportunity starting to ramp, with strong demand for our refreshed networking products,” he said.

That opportunity appears to be the driving force behind Cisco’s optimistic guidance. For the second quarter, the company said it’s looking for sales of between $15 billion and $15.2 billion, topping the analysts’ average forecast of $14.6 billion. It’s also looking for earnings of between $1.01 and $1.03 per share, versus the Street’s 99-cent target.

For the full year, Cisco said it’s aiming for total revenue of between $60.2 billion and $61 billion, with earnings pegged at $4.08 to $4.14 a share. Analysts are looking for just $59.7 billion in annual sales and earnings of $4.04 a share.

Cisco needs the networking business to stay strong because the results from its other two business segments were disappointing. Revenue in the security software unit declined 2% from a year earlier, to $1.98 billion, falling short of the Street’s target of $2.16 billion. Cisco has made a big bet on its security business in an effort to diversify its revenue base, notably acquiring Splunk Inc. for $28 billion in 2024, but it still may be some time until that investment pays off.

Meanwhile, in the collaboration segment, sales slipped to $1.06 billion, down 3% from a year earlier and below the Street’s forecast of $1.09 billion.

Constellation Research analyst Holger Mueller said the results show Cisco has truly turned its business around, with much of its revenue growth driven by investments from cloud infrastructure providers. “In the past, Cisco barely used to get any substantial revenue from this category, but it made significant efforts to change that, and those efforts are now paying off,” the analyst said.

While the performance of Cisco’s security and collaboration units was disappointing, especially since the company once promised these would be growth businesses, investors can likely stomach this due to the gains in the cloud. “They will take the cloud gains at the expense of security and collaboration anytime, because the cloud is where most enterprise workloads are,” Mueller said. “Cisco’s goal now is to repeat this level of performance in future quarters and show that its cloud infrastructure wins are systemic, not a onetime fluke.”

Investors were certainly prepared to overlook the company’s struggles outside of its core networking business. The after-hours stock bump means that its shares are now up 25% in the year to date, outpacing the 21% gain of the broader Nasdaq index.

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