Cisco reported a strong second fiscal quarter of 2023, fueled by stable demand, continued business transformation, and improving supply chain. Chairman and CEO Chuck Robbins noting opportunities to support customer artificial intelligence (AI) and machine learning (ML) investments and related network performance needs.

Robbins said Cisco customers are “moving ahead with” AI and ML investments and building modern infrastructure. “We saw another consecutive quarter of rapid adoption of our 400-gig Cisco 8000 and Silicon One platforms," Robbins said during the earnings call. "This reflects the ongoing investments our customers are making in our innovative solutions and AI-optimized infrastructure.”

This included investments in the networks that are being built to support AI development, which requires three or four times better network performance than they have historically needed, he said when answering a question about excitement around AI and ChatGPT.

“We have some of our largest enterprise customers that are building AI networks and training AI algorithms like in the web-scale space. They are bigger than the core infrastructure networks that they are running, which was astonishing to me when I learned that,” Robbins said. “This is a massive opportunity for us and we are in active discussions with lots of customers around it. And so we do think that this shift is going to create a good opportunity for us in the future.”

Cisco’s total revenue for the quarter grew 7% year over year to $13.6 billion. Cisco's stock surged following the earnings release.

Robbins added. “In our customer markets, we experienced normal double-digit sequential growth in both our enterprise and commercial markets, while the public sector performed better than we have seen historically," Robbins said. "Within our service provider business, our order rate was below recent sequentials as some customers are absorbing the improved delivery of our products into their production environments.”

Despite customers’ feedback showing they still see technology as vital to their overall business resilience, Robbins admitted the company saw elongated sales cycles with extra signatures required.

“It’s a complex world right now. But if you look back at the historical sort of what we would consider a bit of a crisis or a complex world environment, I’ve experienced demand falling off a cliff, and we obviously haven’t seen that in the current situation,” he said.

Additionally, Cisco continues to see supply constraints easing and lead time shortening. The company was able to draw down the total backlog by 6% sequentially, but it still grew year over year, CFO Scott Herren explained.

“We expect orders would normalize from previously elevated levels as customers return to more typical buying patterns,” Robbins said.

In addition to the new opportunities, Cisco raised its full-year outlook on the back of a healthy backlog and pipeline and improved supply chain.

“While the environment we are operating in remains dynamic, Cisco is better positioned today than at any time since I became CEO almost 8 years ago,” Robbins said. “While we continue to closely monitor the global macroeconomic conditions, the overall demand environment remains steady."