Story
Bernstein Taps Celestica as Top Networking Pick on AI Infrastructure Boom
Summary
Analysts at Bernstein have named Celestica their top investment idea in the networking sector, citing a potential $25 billion in underestimated revenue from major AI hardware programs. The firm also highlighted opportunities in Lumentum, Coherent, and Ciena.
Bernstein has identified Celestica as its highest-conviction pick in the U.S. networking and communications equipment sector, arguing that consensus estimates significantly understate the company's revenue potential from the ongoing buildout of artificial intelligence infrastructure.
In a research note, the firm upgraded four companies to an Outperform rating, pointing to major growth drivers in high-speed data center switching, optical components, and specialized AI hardware deployments through 2028.
Top Pick: Celestica's AI Revenue Potential
Bernstein designated Celestica (CLS) as its top pick, assigning a $520 price target that implies a 46% upside from current levels. Analysts believe the market is overlooking major revenue streams from programs like Google's TPU, OpenAI's Jalapeno, and AMD's Helios, along with a broader shift to 1.6-terabit switching.
The firm estimates these programs could generate approximately $25 billion in incremental revenue for Celestica. Bernstein projects the company could guide to year-over-year growth of roughly $20 billion in its Communications and Connectivity Solutions business, well above the consensus forecast of $15 billion in growth for the entire company. The firm's valuation is based on a multiple of 22 times its estimated fiscal 2027 earnings per share of $24.
Bullish on Optical Components
AdBernstein also expressed a positive view on the optical module industry, which is benefiting as data center switches migrate to higher speeds to handle AI workloads. This trend is expected to support transceiver pricing and revenue growth.
- Lumentum (LITE): Rated Outperform with a $1,220 price target (32% upside). Bernstein prefers Lumentum for its "purer exposure and higher incremental margins" compared to peers and expects it to maintain its market share.
- Coherent (COHR): Also rated Outperform with a $350 price target (24% upside). The firm sees Coherent as a key beneficiary of the same favorable trends in optical components driven by data center upgrades.
Long-Term Opportunity in Ciena
Ciena (CIEN) received an Outperform rating with a $440 price target, suggesting a 28% upside. While Bernstein acknowledged near-term supply chain constraints for key components like ceramic packaging and pump lasers, it views the stock's valuation as "undemanding."
Analysts expect these supply issues to improve beyond 2027, which would support stronger growth for the company in the long term.
Read next
More on Stocks
Onsemi Revises Synaptics Takeover to $5.7B All-Cash Deal, Shares Surge
Onsemi and Synaptics have amended their merger agreement to an all-cash transaction of $123 per share, valuing the deal at approximately $5.7 billion. The revision, prompted by a competing offer for Synaptics, sent shares of both semiconductor companies higher in after-hours trading.
Nike Shares Fall as Revenue Miss and Weak Forecast Overshadow Earnings Beat
Nike reported fiscal first-quarter earnings that surpassed analyst expectations, but a revenue shortfall and a downbeat full-year outlook sent the company's shares lower in after-hours trading.
Nike, FICO Shares Fall in After-Hours Trading; Synaptics Jumps on Revised Buyout
Nike shares slipped on a revenue miss, while FICO and TransUnion dropped on regulatory concerns. Synaptics surged after ON Semiconductor raised its all-cash offer in a revised merger agreement.
American Outdoor Brands Shares Rise on New $10 Million Buyback Plan
American Outdoor Brands Inc. (NASDAQ:AOUT) has authorized a new $10 million share repurchase program, leading to a 1.6% rise in its stock price during after-hours trading.