3 AI Optical Networking Stocks Positioned for the Data Center Buildout

AI-driven networking companies have been waiting for a sign to either continue to pull back or reinvigorate a bull run, but Ciena Corp.'s NYSE: CIEN Q3 earnings report may invite more questions than answers. Despite strong earnings and revenue, coupled with continued robust demand for AI and optical networking, shares fell after the report. The culprits? An expectation that margins could moderate after receiving tariff refund benefits, and a general reckoning with the sky-high expectations investors have for the industry, may have contributed. Still, Ciena's report offers a fresh read-through on AI-based networking demand that may be helpful for investors seeking diversified exposure. While Ciena provides optical networking systems and platforms, rivals Lumentum Holdings Inc. NASDAQ: LITE and Coherent Inc. NYSE: COHR offer optical components and transceivers. While not the strongest buy signal, Ciena's report does suggest that the recent sell-off may have improved the risk/reward calculation for these companies.

Ciena's top and bottom lines were strong on paper: adjusted earnings per share (EPS) of $2.11 on almost $1.7 billion in revenue, both comfortably above what analysts had predicted. Adjusted operating margin climbed to 22.5%, a record for the company. The EPS growth, in particular, was notable, as it was a full 215% higher than the figure from just one year ago. Demand continues to significantly outpace supply, resulting in a backlog of $8.5 billion for Ciena (an increase of $800 million from last year). The company expects this to continue and sees a backlog of more than $10 billion by the end of the fiscal year. This helped drive a forecast of 30% year-over-year (YOY) revenue growth for fiscal 2027.

After all that good news, Ciena shares still fell in the hours immediately following the earnings release and remain down more than 15% over the five days surrounding it. Digging deeper into the report, in-line guidance for fiscal Q4 may not have met analysts' lofty expectations for the company's growth trajectory. Further, just two major customers accounted for 42% of the firm's quarterly revenue, leaving it highly vulnerable should one or both of those clients shift their business elsewhere or otherwise reduce their orders. Notably, Ciena's most recent share price drop is somewhat unique compared to the broader industry. One of the company's primary competitors, Arista Networks NYSE: ANET , is down just 1.8% over the last five days; zooming out to the last month, CIEN shares have plunged by 22% while ANET is actually up close to 1%. This might suggest that Ciena's performance of late has been the result of factors internal to the company, rather than industry-wide.