Cisco just broke its biggest hardware rule to chase the AI boom

Cisco Systems Inc. (CSCO) has built its reputation on the routers and switches that move data between machines, not the machines themselves.

This week the company crossed that line. It is now selling AI server hardware directly, through a new partnership with Super Micro Computer Inc. (SMCI), a move that pulls Cisco deeper into a business it has traditionally left to others.

The announcement came Tuesday, August 25, when Cisco said it is expanding its Secure AI Factory with Nvidia architecture to include Supermicro’s liquid and air cooled server systems. Those systems will now be sold and validated as part of Cisco’s own AI infrastructure portfolio, not bolted on as a third party option.

The combined stack becomes compliant with Nvidia’s Cloud Partner program, the credential neoclouds and sovereign cloud operators look for before signing large contracts.

Cisco framed the timing around the scale of AI data center construction underway. Cisco President and Chief Product Officer Jeetu Patel said the industry is at the state of “one of the largest datacenter buildouts in history.”

Related: The AI accountability problem is getting bigger

That framing matters because Cisco is betting its growth on selling into that buildout as more than a networking vendor

Why Cisco needed a hardware partner

Cisco’s own hardware has always been networking gear, not the dense GPU servers that actually run AI workloads. Supermicro fills that gap with rack-scale systems built for Nvidia’s newest platforms, including the Vera Rubin NVL72, a rack that can draw more than 200 kilowatts of power, according to SiliconANGLE.

That power draw is the real constraint driving this deal. Air cooling alone cannot keep up with racks that dense, which is why the partnership centers on liquid cooling that links Cisco’s networking gear directly to Supermicro’s compute hardware.

Cisco says it is the only Nvidia technology partner building an NCP compliant architecture on its own networking silicon, according to the company’s technical FAQ.

That distinction matters commercially. It lets Cisco sell a fuller slice of the data center stack instead of competing purely on switches, where margins are thinner and rivals like Arista have been gaining ground.

Wall Street buys the growth story

A Dow Jones 30 member, Cisco (CSCO) shares rose roughly 1% Tuesday following the news. Wall Street’s broader view on Cisco is more bullish than that modest move suggests.

Also read: DJIA Master List: What companies make up the Dow Jones Industrial Index in 2026?

Twenty six analysts polled by S&P Global rate the stock a consensus Buy with an average price target near $133, implying meaningful upside from current levels, according to Stockanalysis.com.

That bullish consensus is clearly reflected at Morgan Stanley. In an August 24 report shared with TheStreet, analyst Meta A. Marshall reiterated an Overweight rating and a $135 price target for Cisco, noting the company is entering a “more durable growth phase.” Crucially for this hardware pivot, Marshall pointed to upcoming “scale-across AI deployments” as a primary driver.

More Tech:

With industry supply still tightly constrained, Morgan Stanley highlighted that Cisco’s massive balance sheet and direct procurement relationship with TSMC give it a distinct advantage in securing the components needed to actually execute on these dense server builds.

Supermicro’s high-growth, thin-margin reality

Supermicro’s reaction was sharper. SMCI jumped about 9% Tuesday, a move 247wallst attributed partly to the Cisco news and partly to unrelated legal clarity after Taiwanese prosecutors charged former associates without implicating the company itself.

Analyst sentiment remains more guarded than the stock pop implies. Nineteen analysts covering Supermicro rate it a consensus Hold, with an average price target near $42, according to Stockanalysis.com.

That caution sits awkwardly next to Supermicro’s actual numbers. The company’s fiscal fourth quarter revenue reached $11.1 billion, up from $5.8 billion a year earlier, while gross margin recovered to 17.5% from 9.5%, according to Supermicro’s earnings release.

Supermicro also guided fiscal 2027 revenue to a range of $65 billion to $72 billion, more than 75% above this year at the midpoint. Analysts are still pricing in the risk that fast growth and thin margins have coexisted at Supermicro before, and could again.

The race for full-stack dominance

• Cisco disclosed no committed order volume or pricing under the new arrangement, leaving the actual revenue impact unquantified for now.

• The combined architecture unifies Cisco’s Silicon One and Nvidia’s Spectrum-X switch silicon under a single Cisco Nexus One design, a rare instance of a vendor supporting a rival’s networking chips inside its own reference architecture.

• Supermicro’s systems become available through Cisco’s channel starting in October 2026, giving both companies a concrete date to show whether the partnership converts into actual orders.

This deal fits a pattern spreading across enterprise tech. Dell, HPE, and now Cisco are all racing to become full-stack AI infrastructure sellers rather than component vendors, because the AI buildout rewards companies that can offer compute, networking, cooling, and support as one purchase.

For Cisco, that shift is a bigger strategic pivot than the headline suggests. The company that once defined itself by staying out of the server business is now betting its next growth cycle on getting into it, and October will be the first real test of whether customers are buying.

Related: Goldman Sachs partner sends urgent warning on what AI could destroy

This story was originally published by TheStreet on Aug 26, 2026, where it first appeared in the Technology section. Add TheStreet as a Preferred Source by clicking here.