Ciena is an under-the-radar artificial intelligence (AI) play in the age of multi-data center clusters.
Shares of Ciena (CIEN -0.20%) rallied 23.9% this week through 1:46 p.m. ET Friday, according to data from S&P Global Market Intelligence.
Ciena is a leader in optical transceivers and other IP networking and routing hardware and software. That’s a market that has typically served large telecom players, but which has now reaccelerated in the age of artificial intelligence (AI), and the increased networking demands required for it.
On Thursday, Ciena showed off a new AI-powered acceleration, delivering fiscal third-quarter results that handily beat analyst expectations.
Ciena blows past estimates on the back of AI networking needs
In its fiscal third quarter, Ciena grew revenue 29.4% to $1.22 billion, while adjusted non-GAAP (generally accepted accounting principles) earnings per share nearly doubled, up 91.4% to $0.67. Both figures handily beat analyst expectations, especially the bottom-line figure, which bested estimates by $0.14.
Ciena is capitalizing on the newfound demand for inter-data center networking, stemming from the growth of generative AI. AI training companies are now connecting multiple data centers to function as a single AI “cluster,” which increases bandwidth needs. Moreover, as AI becomes infused into many enterprise and edge applications, the need for lighting-fast “inferencing” is also growing networking demand by leaps and bounds.
While Ciena’s traditional telecom market is only growing at a 4% pace, newer markets in metro routing and data center communications are forecast to grow at a 26% compound annualized growth rate through 2028, wherein the new markets will equal the size of Ciena’s traditional markets.
Image source: Getty Images.
Ciena: An underappreciated AI star?
After its rally this week, Ciena currently trades around 27.5 times next year’s earnings estimates. Its fiscal year ends in October 2026.
That’s not exactly cheap anymore, but it is a lower valuation than other AI stars that have recently come onto the scene. That being said, the company 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.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.