JPMorgan Upgrades CIENA (CIEN) to Overweight

JPMorgan analyst Samik Chatterjee upgraded CIENA (NYSE: CIEN) from Neutral to Overweight with a price target of $88.00 (from $84.00).

The analyst comments "We are picking through the exaggerated share price reactions relative to AI levered suppliers, led by investor concerns driven by the revelations around the capital efficiency of DeepSeek’s AI models and see an interesting entry point into shares of CIEN, which will see a limited impact of fundamentals in the near- to medium-term in relation to continued strong capex ramp from Cloud as well as capex recovery from traditional Telecom and incremental investments from MOFN providers. As outlined in our early reaction to the implications of DeepSeek (see report here), we expect a closer evaluation of the capex plans from Hyperscalers and focus on efficiency to likely drive more cyclicality over a short period of time, but still within the overall confines of a secular capex increase long-term, while at the same time driving a burgeoning interest from more NeoClouds to leverage the higher efficiency that will erode the capital led competitive advantages for Hyperscalers. However, we still expect a secular increase in capex at a robust pace with limited impact to the strong, but moderating (on a percentage basis) capex growth from Hyperscalers embedded in our models, and see limited impact to earnings forecasts in relation to growth tied to Cloud investments for equipment suppliers in our coverage, including CIEN. In addition to the limited impact from DeepSeek related concerns to earnings, the other near-term drivers for our upgrade include: 1) Higher momentum in relation to Telecom capex recovery following a tougher investment backdrop as well as inventory digestion headwinds in 2024; 2) Interest from MOFN providers to invest rapidly in datacenter interconnectivity in conjunction with investments from Cloud providers; and 3) CIEN shares after the pull back yesterday are trading at 19x CY26 earnings, which is largely in line with its long-term multiple, relative to near-term drivers supporting a stronger growth outlook medium-term from the higher pace of datacenter connectivity related investments as well as a cyclical recovery in traditional carrier capex. With improving earnings drivers for FY25 (which leads us to raise our growth forecast to high-end of 8%-11% growth forecast), and 8%-11% growth for FY26, we see upside to CIEN shares from the current levels on attributing a 24x target multiple - in line with our target multiple for COHR and modestly above LITE. We are raising our Dec-25 price target to $88 (vs. $84 prior), implying ample upside for the shares following the pull-back yesterday. Our relative rank order in Optical is for COHR followed by LITE and CIEN. We were cautious relative to lofty valuation for Optical companies heading into the upcoming earnings season. However, we see a material shift in valuation premiums following the pull-backs yesterday with CIEN now trading at 19x CY26 EPS along with COHR at 18x, LITE at 16x, and FN at 17x. As we look beyond the near-term drivers of the upgrade of CIEN shares, our relative rank order within Optical names is for COHR followed by LITE and CIEN, particularly as we look at the growth and margin levers for Optical component companies relative to System providers like CIEN, which includes: 1) Growth leverage to increasing densification inside the datacenter, which we expect to exceed growth in investment outside the datacenter; and 2) Margin leverage to expanding intra-datacenter investments through the premium associated with datacom chipsets as well as next generation datacom transceivers."

For an analyst ratings summary and ratings history on CIENA click here. For more ratings news on CIENA click here.

Shares of CIENA closed at $76.29 yesterday.

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