The MoatNarrow moat

Cisco Systems (CSCO) — moat facet

Cisco's installed base still earns more than its cost of capital every year, but the businesses meant to grow it are either rented from hyperscalers or bought at full price.

Cisco has a real moat, and it is narrower than its history suggests. The wide part is the enterprise installed base: services revenue of $15,030 million at a 68.8% gross margin1, subscription revenue of $31,977 million2, $46,734 million of contracted future revenue3, and IDC shares of 29.3% in Ethernet switching and 35.1% in routers4. Customers who have built their networks and their staff's skills on Cisco replace old Cisco equipment with new Cisco equipment.

Return on invested capital (%)WACC ~8%10.7FY1510.4FY179.8FY1819.5FY2018.5FY2220.3FY2315.0FY2413.9FY2515.9FY26Moat Explorer calculation from SEC EDGAR XBRL; 8% hurdle assumed
Above the hurdle every year; below its 2023 peak since Splunk.

The narrow part is everything that is supposed to grow. In data-centre Ethernet switching Cisco was third in the first quarter of 2026, with 17.8% against Nvidia's 21.5% and Arista's 20.7%5. Its $27 billion purchase of Splunk6 added software revenue that grew 4% in fiscal 20267.

The returns confirm a moat without a dominant one. Return on invested capital, computed from EDGAR, has been above an assumed 8% cost of capital in every fiscal year since 2015, from a low of 9.8% in fiscal 2018 to a high of 20.3% in fiscal 2023, and was 15.9% in fiscal 20268. The Splunk goodwill pulled it down from the fiscal 2023 peak.

What is new is that Cisco is growing again on hardware it designs itself. Hyperscaler AI orders reached $9.3 billion in fiscal 20269. That widens its reach, but the margin cost is visible and the customers are few.

The returns rest on a strong gross margin more than on growth. Cisco's reported gross margin was 62.5% in fiscal 2022, 62.7% in fiscal 2023, 64.7% in fiscal 2024, 64.9% in fiscal 2025 and 64.5% in fiscal 20261011. A company selling commodity boxes would not hold margins near 65% for five years; customers are paying for the software, support and compatibility that come with the box.

The board has changed at the margins. Daniel Schulman resigned from the board effective 21 May 2026 because of his new role as chief executive of Verizon Communications12, and Robbins sits on BlackRock's board13. Neither change touches the moat, which lives in the installed base and the people who support it.

The verdict is narrow and stable: switching costs protect the base, and nothing yet shows the base growing. The number that would change it is return on invested capital; a fall below 12% would mean the AI and software bets are consuming more capital than the installed base earns.

Moat trajectory: Holding steady

ROIC 15.9% in FY2026, above an 8% hurdle every year since 2015.

The number that tests this moat
Moat Explorer calc
Return on invested capital vs 8% hurdle
15.9% (FY2026); 20.3% in FY2023

Whether the moat earns its cost of capital; a fall below 12% would mean the growth bets consume more than the base earns.

How it's calculated: NOPAT over average operating invested capital from SEC EDGAR XBRL via tools_roic_edgar.py; the 8% hurdle is an assumed cost of capital.
Source: Moat Explorer ROIC calculation from EDGAR ↗
Aspects of the moat
DIG DEEPER 01
The Enterprise Installed Base
Cisco's real moat is the equipment already installed, which customers pay to keep running and rarely replace with anyone else's.
DIG DEEPER 02
Silicon One and the AI Build-Out
Cisco went from under 2% to about 6% of revenue from hyperscaler AI in one year, on its own chips, at the cost of margin.
DIG DEEPER 03
Splunk and the Software Turn
Cisco paid $27 billion to become a software company, and in the first full year after, its software grew 4%.
DIG DEEPER 04
The Cash Machine
Cisco turns about a fifth of its revenue into free cash flow and gives almost all of it back, which is what a moat that needs no reinvestment looks…
References
  1. ReportedThe wide part is the enterprise installed base: services revenue of $15,030 million at a 68.8% gross margin, subscription revenue of $31,977 million, $46,734 million of contracted future revenue, and IDC shares of 29.3% in Ethernet switching and 35.1% in routers.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - capital returns, share count, debt and equity. — FY2026 · publ. 2 September 2026 · source ↗
  2. ReportedThe wide part is the enterprise installed base: services revenue of $15,030 million at a 68.8% gross margin, subscription revenue of $31,977 million, $46,734 million of contracted future revenue, and IDC shares of 29.3% in Ethernet switching and 35.1% in routers.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - capital returns, share count, debt and equity. — FY2026 · publ. 2 September 2026 · source ↗
  3. ReportedThe wide part is the enterprise installed base: services revenue of $15,030 million at a 68.8% gross margin, subscription revenue of $31,977 million, $46,734 million of contracted future revenue, and IDC shares of 29.3% in Ethernet switching and 35.1% in routers.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - capital returns, share count, debt and equity. — FY2026 · publ. 2 September 2026 · source ↗
  4. Third-party estimateThe wide part is the enterprise installed base: services revenue of $15,030 million at a 68.8% gross margin, subscription revenue of $31,977 million, $46,734 million of contracted future revenue, and IDC shares of 29.3% in Ethernet switching and 35.1% in routers.
    IDC, Worldwide Ethernet switch and router tracker, 1Q26 - Cisco switching revenue $4.5B and 29.3% share, router share 35.1%. — 1Q26 · publ. 2026 · source ↗
  5. Third-party estimateIn data-centre Ethernet switching Cisco was third in the first quarter of 2026, with 17.8% against Nvidia's 21.5% and Arista's 20.7%.
    DataCenterKnowledge on IDC 1Q26 - data-centre Ethernet switching shares: Nvidia 21.5%, Arista 20.7%, Cisco 17.8%. — 1Q26 · publ. 2026 · source ↗
  6. ReportedIts $27 billion purchase of Splunk added software revenue that grew 4% in fiscal 2026.
    Cisco Systems Form 10-K for fiscal 2024 - the new product categories with fiscal 2022-2023 restated, segment revenue and margins, and the Splunk acquisition. — FY2024 · publ. September 2024 · source ↗
  7. ReportedIts $27 billion purchase of Splunk added software revenue that grew 4% in fiscal 2026.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - financial statements and notes: balance sheet, cash flow, commitments, customers and acquisitions. — FY2026 · publ. 2 September 2026 · source ↗
  8. Moat Explorer calcReturn on invested capital, computed from EDGAR, has been above an assumed 8% cost of capital in every fiscal year since 2015, from a low of 9.8% in fiscal 2018 to a high of 20.3% in fiscal 2023, and was 15.9% in fiscal 2026.
    Moat Explorer calculation, tools_roic_edgar.py on SEC EDGAR XBRL for CIK 858877: return on invested capital by fiscal year 10.7% (2015), 12.2% (2016), 10.4% (2017), 9.8% (2018), 17.8% (2019), 19.5% (2020), 17.1% (2021), 18.5% (2022), 20.3% (2023), 15.0% (2024), 13.9% (2025), 15.9% (2026). — FY2015-FY2026 · publ. September 2026 · source ↗
    Method: NOPAT (operating income x (1 - effective tax rate)) divided by average operating invested capital (total assets less current liabilities less cash), from SEC EDGAR XBRL via tools_roic_edgar.py. Cisco's large investment portfolio before 2018 and the Splunk goodwill from 2024 both weigh on the denominator.
  9. ReportedHyperscaler AI orders reached $9.3 billion in fiscal 2026.
    Cisco fourth-quarter and fiscal 2026 results release, Form 8-K exhibit 99.1 - quarterly revenue by line and segment, margins, AI infrastructure orders and fiscal 2027 guidance - orders, acquisitions, dividend and fiscal 2027 guidance. — Q4 FY2026 · publ. 12 August 2026 · source ↗
  10. ReportedCisco's reported gross margin was 62.5% in fiscal 2022, 62.7% in fiscal 2023, 64.7% in fiscal 2024, 64.9% in fiscal 2025 and 64.5% in fiscal 2026.
    Cisco Systems Form 10-K for fiscal 2026 (year ended 25 July 2026) - Item 7 MD&A: revenue by product category and segment, and gross margins. — FY2026 · publ. 2 September 2026 · source ↗
  11. ReportedCisco's reported gross margin was 62.5% in fiscal 2022, 62.7% in fiscal 2023, 64.7% in fiscal 2024, 64.9% in fiscal 2025 and 64.5% in fiscal 2026.
    Cisco Systems Form 10-K for fiscal 2024 - the new product categories with fiscal 2022-2023 restated, segment revenue and margins, and the Splunk acquisition. — FY2024 · publ. September 2024 · source ↗
  12. ReportedDaniel Schulman resigned from the board effective 21 May 2026 because of his new role as chief executive of Verizon Communications, and Robbins sits on BlackRock's board.
    Cisco Systems Form 8-K, Item 5.02, 31 March 2026 - Daniel H. Schulman resigns from the board effective 21 May 2026 on becoming chief executive of Verizon Communications. — March 2026 · publ. 31 March 2026 · source ↗
  13. ReportedDaniel Schulman resigned from the board effective 21 May 2026 because of his new role as chief executive of Verizon Communications, and Robbins sits on BlackRock's board.
    Cisco Systems 2025 proxy statement (DEF 14A) - principal shareholders and director biographies. — 2025 · publ. 28 October 2025 · source ↗
Sources
Generated September 25, 2026