According to Woofun AI, Morgan Stanley (MS.US) cut its price target on Corning (GLW.US) from $165 to $155 in a research note dated October 28, 2026, while keeping its "equal-weight" rating.
Although Corning's optical communications revenue is accelerating, analysts believe the capacity ramp-up is already fully reflected in expectations and that the incremental revenue has not yet translated into profit above forecasts; earnings estimates were raised, but the valuation multiple contracted in tandem, leading to the lower price target.
The revenue growth trajectory of the optical communications business is clear and strong, with incremental sales from expansion climbing from $150 million in the first quarter to $225 million in the second quarter and reaching $300 million in the third quarter.
Data compiled by Woofun AI shows third-quarter core sales of $5.08 billion, up 19% year over year, of which optical communications revenue rose 44% year over year to $2.38 billion, while segment net profit reached $532 million, up 80% year over year, raising its share of core sales to about 47%.
Within the segment, the enterprise networking business stood out, growing 84% year over year, with generative AI-related sales more than doubling; by contrast, the carrier business grew 4% year over year, reflecting a modest recovery in traditional telecom demand.
This structural growth validates the company's execution of its medium-term growth plan, as the expansion begins to contribute recognizable sales revenue.
It is worth noting that the customer prepayment mechanism has effectively eased the funding pressure of the expansion, with customer prepayments contributing $639 million to operating cash flow year to date and supporting free cash flow of more than $2 billion over the same period.
Most growth-related capital expenditure is backed by long-term customer agreements, and this arrangement of paying cash in advance reduces the execution risk of the expansion, filling the funding gap between new equipment investment and the release of sales revenue.
However, prepayments do not equate to current profit, as Corning still must deliver products under the agreements and new capacity must reach the intended production efficiency, meaning certainty on the funding side does not directly translate into earnings flexibility.
Pressure on the profit side stems mainly from three drags.
First is the solar business, where third-quarter revenue rose 37% year over year to $436 million and was roughly flat quarter over quarter, but the net loss remained $7 million.
The capacity ramp-up for wafers and modules has been slower than expected, and startup costs continue to erode profit; although management believes trade measures have improved the pricing and demand environment for U.S.-made solar products, slow gains in production efficiency have limited the extent of near-term earnings beats.
Second, variable compensation is weighing on operating leverage, with related expenses in the third quarter still above normal levels and pressure falling mainly on businesses outside optical communications; management expects expenses to stabilize in the fourth quarter and reset in 2027.
Finally, consumer weakness persisted, with glass innovation revenue falling 3% year over year to $1.51 billion and net profit down 10% year over year, as memory price increases suppressed end demand and display price increases are not expected to contribute meaningfully to results until 2027.
Together, these factors diluted the quality of the growth, making it easy to overestimate short-term earnings leverage by looking only at the growth rate of AI-related businesses.
Despite the upward revision to earnings estimates, the contraction in valuation multiples offset the positive effect.
Morgan Stanley raised its 2026 core revenue forecast from $19.3 billion to $19.4 billion and core EPS from $3.28 to $3.37; it also lifted its 2027 core revenue forecast from $22.8 billion to $23.2 billion and core EPS from $4.21 to $4.37.
However, the baseline P/E based on 2028 earnings was lowered from about 30x to about 28x, reflecting an overall contraction in valuation multiples for AI-related stocks.
The report points to 2027 for the next meaningful catalysts, especially demand for optical connectivity needed for scale-up interconnect within clusters, which is more likely to ramp gradually in the second half.
Downside risks are also clear, including a slowdown in AI capital expenditure, delays in the capacity ramp-up, and continued weakness in non-optical communications businesses.
The core test for Corning in the next stage is to keep more of the expansion results on the income statement, and the next round of valuation discussions will be driven by income statement performance.
After the earnings release, Corning shares closed up 3.88% at $131.20 on October 28, still below the lowered price target.
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