Increase in Ciena's Shares This Week Explained

In the rapidly evolving landscape of artificial intelligence (AI), companies specialising in optical transceivers, IP networking, and routing hardware and software are finding themselves at the forefront of a new revolution. Ciena, a $16 billion market capitalisation company, is one such player making significant strides in this domain.

On Thursday, Ciena reported its fiscal third-quarter results, which handily beat analyst expectations. The bottom-line figure for the quarter bested estimates by $0.14, while adjusted non-GAAP earnings per share nearly doubled, up 91.4% to $0.67. The company's revenue grew by 29.4% to $1.22 billion in the same period.

The growth of generative AI and the increasing need for inter-data center networking are driving this newfound demand. As AI becomes infused into many enterprise and edge applications, the need for lighting-fast "inferencing" is also growing, thereby increasing networking demand. This trend is particularly prominent in the markets of metro routing and data center communications, which Ciena is capitalising on. These markets are forecast to grow at a 26% compound annualized growth rate through 2028.

Ciena's stock, trading at $116.52 on NYSE as of the current date, experienced a 23.9% increase in shares this week. This growth is attributed to the reacceleration of the market for Ciena's products, traditionally served by large telecom players, due to the age of artificial intelligence and increased networking demands.

However, Ciena's valuation is not exactly cheap anymore. As of the current date, the company trades around 27.5 times next year's earnings estimates, with its fiscal year ending in October 2026. Despite this, Ciena could make for a solid addition to a high-quality AI-oriented "basket" portfolio for those bullish on the long-term prospects of the AI build-out.

The main competitors in the new markets for metro-routing and data center communication, expected to grow with a compound annual growth rate of 26% by 2028, include Cisco Systems, Juniper Networks, Arista Networks, Infinera, and Nokia.

The image source for this article is Getty Images.

For those interested in learning more about Ciena and its role in the AI-driven future, further research is encouraged. The company's innovative solutions are leading the charge in a world where AI and high-speed networking are increasingly intertwined.