Morgan Stanley and Jefferies Raise Ciena Price Targets Due to AI Opportunity

Jefferies and Morgan Stanley have raised their price targets for Ciena stock following the company’s recent webcast, where it elaborated on the impact of artificial intelligence (AI) on its business strategy.

Jefferies analysts increased their price target for the stock from $65 to $80, highlighting Ciena’s structural advantages in the optical sector and new growth prospects related to AI. This new target is based on a valuation of 22.7 times their earnings per share (EPS) estimate for the calendar year 2025, up from 15.4 times. This adjustment reflects the potential for greater upside in Ciena’s business model along with reduced risks from customer inventory and pluggable technologies.

Analysts noted Ciena’s optimistic outlook on traffic growth driven by cloud services and AI, which could surpass the historical average of 25-30%. They observed that while the current increase in AI traffic is primarily confined to data centers, the physical limitations of GPUs will likely require broader optical network connections in the future.

In their analysis, Jefferies wrote, “While most of today’s AI traffic growth is contained within the Data Center, constraints related to power, space, and cooling associated with GPUs indicate that clusters will eventually need to be expanded and connected by optical networks.”

Meanwhile, Morgan Stanley expressed confidence in Ciena’s growth potential, particularly in its positioning for intra-data center and long-haul direct current interconnect (DCI) markets. The firm raised its price target for Ciena from $60 to $63.

Morgan Stanley analysts suggested that advancements in coherent technology within data centers could further propel Ciena’s growth, possibly exceeding the traditional growth range of 6-8%. They noted that Coherent’s entry into data centers is anticipated to become a significant market opportunity by 2026.

“Although the timing for realizing medium-term gains from AI remains uncertain, combined with a recovery in service providers, pluggable technology, routing, and more, we believe there are opportunities for upside in fiscal year 2025, leaving us with an Overweight rating, with some AI-related growth drivers likely emerging thereafter,” they added.

Following this news, Ciena shares saw a slight increase of around 0.8% after the market opened on Wednesday.