T.D. Cowen has commenced coverage on several companies in the networking and communications sector. The firm assigned a "Buy" rating to Arista Networks (ANET.US), Coherent (COHR.US), and Ciena (CIEN.US), while issuing a "Hold" rating for Lumentum Holdings (LITE.US).
An analyst team led by Sean O'Loughlin stated in a research report, "With its robust foundational intellectual property in hardware and software design, we believe Arista is positioned to become the preferred supplier for Ethernet-based scale-out and scale-up switches. Multi-tenant large model inference deployments demand extremely high technical specifications, and Arista's data-driven networking platform is ideally suited for next-generation AI data center requirements." The firm set a price target of $170 for Arista.
O'Loughlin further explained, "One of the biggest market misconceptions about Arista is the underestimation of its underlying hardware differentiation. Using merchant silicon does not imply a lack of hardware advantages. Switch chips are just one component of the overall system, and Arista's deep hardware-software co-design has enabled it to become the largest supplier over the past decade to Microsoft (MSFT.US) and Meta (META.US), two leaders in open networking."
Meanwhile, Coherent received a price target of $330. As 800G/1.6T products gain adoption and co-packaged optics (CPO) and optical circuit switching (OCS) see scaled deployment, the company is expected to continue benefiting from AI infrastructure demand.
O'Loughlin noted, "The core strength of Coherent's business model lies in the integration of the former Finisar's optical module business with the former Coherent's laser business, achieving vertical integration of key optical componentry. Importantly, Coherent does not sell its internally developed lasers externally; they are entirely supplied to its own optical module business, with any shortfall sourced from external suppliers like Lumentum. We view this model favorably, as it significantly mitigates concerns about potential laser oversupply – if oversupply occurs, Coherent can simply reduce external purchases."
T.D. Cowen assigned Ciena a price target of $425, partly due to its recent acquisition of Nubis, which further strengthens its data center interconnect capabilities.
O'Loughlin commented, "Following the Nubis acquisition, we believe Ciena has clear growth opportunities in both scale-out and scale-up directions. Compared to peers, Ciena's uniqueness lies in its focus on entirely new, incremental markets. While competitors' existing intra-data center businesses may face challenges, scale-out and scale-up represent pure new growth opportunities for Ciena."
Finally, Lumentum was given a price target of $675. O'Loughlin stated, "We maintain a positive long-term view on the company, but given significant capacity expansion by leading indium phosphide (InP) manufacturers and a demand shift towards continuous wave (CW) lasers, we are initiating with a 'Hold' rating. Wafer capacity expansion, combined with a product mix shift towards smaller-sized, higher-yield CW lasers, will substantially increase the global InP industry's ability to support optical modules, potentially leading to oversupply pressures in the commercial market."
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