Ciena Stock: Powering the AI Boom - A Network Infrastructure Play

Key Points

• Ciena provides adaptive network infrastructure equipment and software to enable the transmission of massive amounts of data generated by AI applications.
• Ciena reported a Q2 2024 EPS beat by 12 cents while revenues slipped 19.6% YoY.
• Ciena expects WaveLogic 6 equipment sales to ramp up meaningfully in Q3 2024.

Network infrastructure solutions provider Ciena Co. NYSE: CIEN plays a critical role in the artificial intelligence (AI) revolution. AI platforms require computing power, data storage speed and capacity, and optimal networking with low latency and high bandwidth to transmit oceans of data quickly. Ciena develops and manufactures the components for optical networking equipment and provides the services and software to enable communication networks. Ciena was a key player in the growth of the internet, cloud economy, and digital transformation, which pales in comparison to the potential of the AI revolution. Ciena has been growing its non-telco business to account for nearly 46% of total revenues. 

Ciena operates in the computer and technology sector and competes with other network solutions providers, including Cisco Systems Inc. NASDAQ: CSCO, Extreme Networks Inc. NASDAQ: EXTR, and Hewlett Packard Enterprise Co. NYSE: HPE with its acquisition of Juniper Networks.

Networking is a Key Element of AI Infrastructure

While NVIDIA Co. NASDAQ: NVDA gets the major headlines for producing AI chips, these chips would be useless without the ability to process and transmit oceans of data quickly and efficiently. This entails having a reliable high-speed network infrastructure. This is where Ciena plays a critical role. Their high-performance networking equipment and WaveLogic technology act as the backbone of networks, enabling massive amounts of data to be transferred back and forth between AI computing centers, storage facilities, and end users.

Ciena utilizes and provides AI software for optimal routing and switching, throttle, and scaling to manage traffic efficiently. Ciena enables the AI revolution to flourish by providing the adaptive network infrastructure hardware and software to support the huge data flows of AI applications and processes.

CIEN Attempts an Ascending Triangle After Earnings Gap and Crap

The daily candlestick chart on CIEN illustrates the large price gap to $53.58 following its earnings release, which completely sold off the following to a swing low of $44.69. The ascending trendline formed from the swing low and the subsequent higher lows on pullbacks up towards the flat-top upper trendline at $49.67. The daily relative strength index has bounced back up through the 53-band. Pullback support levels are at $47.46, $44.69, $42.20, and $39.94.

CIEN reported Q2 2024 EPS of 27 cents, beating consensus estimates by 12 cents. Revenues tumbled 19.6% YoY to $910.8 million, handily beating $895.8 million consensus estimates. The non-GAAP operating margin was 6.8% compared to 13.8% in the year-ago period. 

Ciena Stock: Full Year 2024 Revenue Forecasts at Low End of Range

Ciena expects full-year 2024 revenues of $4 billion, representing the low range of the previously forecasted $4 billion to $4.3 billion expectation. Q3 2024 revenues are expected between $880 million to $960 million versus $1 billion consensus analyst estimates. Adjusted gross margins are expected in the low to mid-40s range. Adjusted operating expenses are expected to be around $345 million. Its WaveLogic 6 Extreme is seeing strong early traction and remains on track to be generally available within several months. The company expects orders to increase meaningfully in Q3 2024. Service provider orders are slower than originally expected.

Ciena CEO Details Some Product Customer Counts  

Ciena CEO Jim Moylan noted the company ended the quarter with nearly $1.4 billion in cash and investments. The company bought back 1.1 million shares for $57 million in the quarter and is on track to buy back a total of $250 million for the fiscal year. Ciena added 20 new customers for WaveLogic 5 Extreme, bringing the total customer count to 290. The company has shipped over 123,000 WaveLogic modems to date.

Reconfigurable line system (RLS) revenues jumped 12% YoY with the addition of seven new customers. WaveLogic 5 Nano 400 ZR and ZR+ pluggables gained 18 new customers, leading to strong early traction for its next-gen WaveLogic 6 Extreme systems with 14 orders already in the system for the industry’s first and only 1.6 terabit solution. Fundamental demand drivers are incredibly strong as data generation and network traffic will continue to grow at very healthy rates.

CEO Moylan commented, “Based on our pipeline and current projections, we believe that orders will increase meaningfully in Q3 and actually have the potential to meet or exceed our revenue during the quarter.”

Moylan cautioned, “ However, in the near-term, while we see signs of improvement, the recovery of service provider order patterns is still slower than initially expected, as they continue to absorb and deploy large amounts of their inventory.”

Ciena analyst ratings and price targets are at MarketBeat. The consensus analyst price target has 18% more upside.