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Investing.com -- Morgan Stanley (NYSE:MS) downgraded Ciena (NYSE:CIEN) Corp to Underweight from Equal Weight and trimmed its price target to $70 from $73, saying rising sales tied to artificial‑intelligence networks are not translating into higher earnings.
Ciena has lifted its fiscal‑2026 revenue outlook by about 10% over the past three quarters, largely due to demand for 400‑gigabit pluggable modules used in data‑centre interconnects.
Yet consensus earnings for the same period have slipped 4% as those lower‑margin products dilute profitability.
“We see risk reward skewed more negatively from here,” the note said, adding that Ciena’s shares now trade roughly seven times above their three‑year average multiple.
Morgan Stanley expects the company to keep beating revenue estimates, buoyed by a recent multi‑hundred‑million‑dollar GPU‑cluster win, but doubts the market will reward the topline outperformance unless gross margins improve.
Street forecasts already embed more than 100 basis points of margin expansion for FY26, leaving little room for positive surprises, it said.
Tougher comparisons at telecommunications customers in the second half of this year and continued reliance on 400ZR modules could further cap earnings growth.
The higher‑margin 800ZR product line should help, but it is unlikely to ramp meaningfully before 2026.
The firm values Ciena at 21 times its FY26 earnings estimate of $3.33 a share, slightly below the stock’s one‑year average multiple.
A bear‑case valuation of $26 assumes flat EPS, tariff pressures and demand weakness, while a bull‑case view of $98 would require a faster‑than‑expected 800ZR rollout and stronger margins.
Morgan Stanley highlighted risks including tariff‑driven cost inflation, macroeconomic headwinds and delays in AI‑related spending.
“FY26 revenue has been revised up ~10% … but we have seen EPS estimates for the same period fall (4%),” the analysts wrote, underscoring their concern that sales growth is not flowing through to the bottom line.