Ciena (CIEN -1.77%) has seen its stock soar 35% in the last three months, despite recent financial struggles with revenue and earnings dropping in Q3 of fiscal 2024.
The worst seems to be over for Ciena
Ciena’s Q3 revenue fell 12% to $942 million, and earnings dropped 41% to $0.35 per share, mainly due to a decline in network and optical revenue. This slump is tied to a 17% drop in telecom spending globally in early 2024. However, Ciena’s order inflow has improved with a book-to-bill ratio over 1, and inventory has decreased significantly.
Analysts predict telecom spending to decrease 8-10% in 2024, but signs of recovery in North American telecom spending could boost Ciena’s future performance. Their upcoming forecast suggests revenue around $1.1 billion, with healthier margins than before.
AI demand as a growth driver
Ciena’s stock is considered attractive as it stands to benefit from rising AI and data center connectivity demands. Two investment firms have increased their price targets based on these growth prospects. Ciena highlighted that global data center bandwidth is expected to increase significantly through 2027, suggesting a boost in demand for their services.
As AI adoption grows, Ciena is already experiencing positive effects, securing new contracts with major cloud providers. Market studies indicate potential doubling of back-end network spending, reinforcing expectations of accelerated growth for Ciena.
Ciena’s earnings are projected to recover and grow substantially in the coming years. If estimates are on track, its stock could rise notably, presenting a promising opportunity for investors interested in AI-related growth.
In summary, Ciena, trading at appealing valuations, stands poised for continued success as AI technology grows.
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