Popular AI infrastructure stock Ciena (CIEN.US) is about to announce its financial performance, with Morgan Stanley maintaining a "cautiously optimistic" outlook.

Ciena (NYSE: CIEN) will release its fourth-quarter performance next Thursday. Morgan Stanley issued a research report, reiterating a "hold" rating on Ciena but raised its target price from $140 to $185 to reflect the earnings brought by the expansion of its cross-business sector; it is expected that its stock price will be closer to optimistic expectations in the short term. Since the release of the third-quarter report, Ciena's valuation has continued to rise by over 100% due to the increasing optimistic expectations for cross-sector opportunities. Ciena has been favored and its stock price has surged in the recent AI data center infrastructure boom mainly due to its leading position in high-speed network equipment and Data Center Interconnect (DCI) technology, which are crucial for supporting large and rapidly growing AI workloads. AI workloads, especially large language model training, require extremely high data transfer rates. Ciena's CEO pointed out that powerful data centers built for AI are becoming "incredibly large," directly driving the demand for high-performance optical fiber network equipment. Ciena produces fiber optic network equipment for cloud service providers to connect various large data centers. With the surge in AI-specific data center construction (it is estimated that 43% of new data centers will be dedicated to AI workloads), DCI bandwidth demand is expected to increase by over six times in the next five years, providing Ciena with a huge market opportunity. Ciena is at the forefront of advancing Network-1 Technologies, Inc. standards. For example, the company was the first to complete real-time demonstrations of 448G/channel and conducted the world's first 3.2T, 2km link experiment, proving that its technology can meet unprecedented high-speed rate evolution demands in the AI era. However, it is worth noting that Morgan Stanley pointed out that since the expected P/E ratio for fiscal year 2027 is around 35 times (the buyers' expected P/E ratio is 28 times), it is unlikely to see another significant increase when the report is released. Morgan Stanley stated that by expanding its scale in existing business sectors and new product categories (such as DCOM), Ciena will increase revenue opportunities. With the possibility of further data increases, Morgan Stanley is optimistic about the earnings report but expects no new significant growth as demand has already been largely reflected in the buyers' evaluations and valuations; it is expected that Ciena will raise its revenue growth guidance for fiscal year 2026 to around 19%-20%, up from the guidance of about 17% announced during the third-quarter conference call. As mentioned several times by Morgan Stanley in this quarter, with its competitive advantage and the growing demand for dense connections between data centers as training cluster/inference application scenarios expand, Ciena has a strong market position in cross-scale or data center interconnection areas. Morgan Stanley discussed these opportunities in its Oakton trip summary report and visit to ECOC, but these opportunities are reflected in its approximately 70% market share in the long-haul DCI market, its challenger position in pluggables, and its role in helping create new product categories like DCOM. Combined with the continuously growing revenue opportunities, Ciena reduced operating expenses in the third quarter's financial report to generate more revenue from this demand, leading to a reassessment of the stock valuation. Ahead of the earnings release, Morgan Stanley was optimistic due to the expected rise in related data, but given that the demand conditions are largely integrated into the buyer's expectations and its buyers' valuation multiples are already higher than similar stocks (within a buyer's valuation range of 20-26 times), Morgan Stanley does not expect another significant increase to occur.