Broadcom (AVGO +0.37%) has been gaining prominence in the artificial intelligence (AI) chip market thanks to its application-specific integrated circuits (ASICs). The custom AI processors designed by the company have helped it secure multibillion-dollar deals with hyperscalers and AI companies.
That's not surprising, as these chips can help lower the operating costs of data centers while boosting performance when compared to graphics processing units (GPUs). As such, it is easy to see why Broadcom's growth trajectory has been improving in recent quarters, and the company's impressive revenue backlog points to better times ahead.
Importantly, Broadcom's healthy growth has translated into solid gains of 66% on the market this year. It is likely to end the year on a solid note following the release of its fiscal 2025 fourth-quarter results on Dec. 11. However, Broadcom isn't the only company that's benefiting from the robust spending on AI infrastructure.
Optical networking specialist Ciena (CIEN +1.66%) is also witnessing an acceleration in growth thanks to AI. The stock has registered stunning gains of 137% this year, which is more than double the jump in Broadcom's stock price. That rally could get another boost when Ciena releases its fiscal 2025 Q4 results on Dec. 11, the same day as Broadcom.
Let's see why that could be the case.
Image source: Getty Images.
Ciena's offerings play an essential role in the AI ecosystem
Ciena sells optical networking components, routers, switches, and related software and services that enable high-speed data transmission. Not surprisingly, the proliferation of AI has been a tailwind for its business. That's because AI data centers require high-speed networking to move large amounts of data quickly to train AI models and run inference applications.
The company provides data center interconnect (DCI) solutions, which enable fast connectivity between data centers, along with optical fiber networking. The demand for these components is so strong that Ciena is receiving more orders than it can fulfill. As pointed out by CEO Gary Smith on its September earnings call:
Further evidence of strong demand was in our Q3 order book, which was, again, considerably above revenue and in fact, sets a new quarterly record for us. This function increase in orders we've seen in recent quarters really underscores how the Network is now fundamental to the underpinning growth and monetization of AI.
This explains the 29% year-over-year increase in Ciena's revenue in its fiscal 2025's third quarter (which ended on Aug. 2) to $1.22 billion. That was a solid improvement over the 12% revenue drop the company reported in the same quarter last year. As Ciena is getting new orders at a faster pace than the increase in its revenue, it is likely to maintain healthy revenue growth levels going forward.
The company has already guided for 17% revenue growth in the next fiscal year, along with continued growth in its gross margin. However, don't be surprised to see it do better than that, as it sees its addressable market expanding to $26 billion by 2028, driven by the growing need for fast AI data center connectivity. In fact, Ciena estimates that data center bandwidth could grow at an annual rate of 35% through 2028, double what it was anticipating earlier.
Ciena management estimates that more than 1,500 new data centers are likely to be built through 2032. That should continue to expand its addressable market. Not surprisingly, the company is looking to bolster its AI data center offerings.
NYSE: CIEN
Key Data Points
It announced the acquisition of Nubis Communications for $270 million in September. Nubis deals in "high-performance, ultra-compact, low-power optical and electrical interconnects tailored to support AI workloads." Ciena believes that this acquisition will unlock more opportunities for the company in data centers, potentially aiding its growth profile.
Why the stock can still fly higher
Analysts expect Ciena to have clocked 17% revenue growth in its recently concluded fiscal 2025 to $4.71 billion. The company has already guided for identical growth in the current fiscal year, although its fast-growing order book could help exceed that.
We saw that Ciena's top line jumped by almost 30% last quarter. Assuming the company manages to maintain even a 25% top-line jump in fiscal 2026, its revenue could hit $5.89 billion. Ciena trades at an attractive 6.5 times sales. That's lower than the U.S. technology sector's average price-to-sales ratio of 8.4.
Assuming the stock trades in line with the tech sector after a year, thanks to its better-than-expected growth, its market value could jump to almost $50 billion. Ciena current has a market cap of $28.4 billion, which means that this AI stock has the potential to fly significantly higher in the coming year. That's why investors may want to buy its shares while they are cheap.
