Why This AI Bottleneck Means Ciena Stock Has 58% Upside

AI infrastructure demand for optical networking gear could lead Ciena stock to rise another 58%. (Dreamstime)

Key Points

• Ciena shares rise Monday after Evercore ISI upgrades the stock to Outperform from In Line.
• Evercore ISI analyst Amit Daryanani raises his Ciena price target to $550 from $375, representing 58% upside from Friday’s closing price.
• Daryanani says Ciena is well-positioned to address data center connectivity bottlenecks in the artificial-intelligence buildout.

Shares of Ciena advanced Monday after the stock was upgraded as optical networking has started to be a critical issue for the artificial-intelligence buildout.

Evecore ISI analyst Amit Daryanani on Monday upgraded Ciena to Outperform from In Line and raised his price target to $550 from $375. That price target represented 58% upside from the closing price of $348.80 on Friday.

“We see CIEN as an attractive way to gain exposure to the optical networking space that is quickly emerging as a critical bottleneck in the AI buildout,” Daryanani wrote.

Ciena stock rose 6.5% to $371.36 in premarket trading on Monday. Shares have fallen about 9% in September as the closing bell on Friday but have risen 49% this year.

Fellow optical networking stocks Corning and Coherent rose 4% to $156.13 and 3.2% $327.54, respectively. Lumentum rose 2.4% to $953.

Daryanani wrote that connectivity between and inside data centers has become an increasingly “critical gating factor” for frontier large language model monetization. The analyst added that this problem is something Ciena is “purpose built to address as the only fully dedicated optical systems provider.”

Optical networking companies have become a major part of the AI trade as the data-center buildout has boosted demand for fiberoptic cables that transit data between and beyond data centers.

Evercore ISI expects this dynamic to continue and to drive upside performance for Ciena stock.

The upgrade came after Ciena held its investor forum Wednesday and outlined three-year financial targets with revenue growing at an annual rate of about 30% with adjusted gross margin increasing annually by 50%. The networking company also forecast adjusted operating margin in the range of 32% to 35% growth through 2029 and free cash flow margins of approximately 20%.

Morgan Stanley analyst Meta Marshall raised her price target to $450 from $425 and reiterated an Equal Weight rating on Ciena following the investor day event.

The analyst noted that Ciena has built a technology lead over the last decade and that the updated about 30% annual revenue growth through 2029 “point to continued share growth.”

“We walked away encouraged about the ability of CIEN to hold or expand share at the bleeding edge,” Marshall wrote. “To the extent that hyperscalers are fiber/power constrained, CIEN will have more of an ability to gain share, as technology leadership will be highlighted more.”

Rosenblatt analyst Mike Genovese last week also noted that Ciena has been supply constrained rather than demand constrained.

“With promising growth opportunities, we see clear upside in the name with more to come as newer segments are adopted by the market and supply constraints begin to ease in 2028,” Genovese wrote.

The bullish views on Ciena aren’t an anomaly. Of the 24 firms polled by FactSet, Ciena stock has an average Overweight rating with a price target of $525.78.

Write to Kit Norton at kit.norton@barrons.com

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