TD Cowen covers the networking and communication sector for the first time: Arista (ANET.US) and two others receive a "buy" rating. Lumentum (LITE.US) receives a "hold" rating.

T.D. Cowen recently initiated coverage of several individual stocks in the network communications sector, giving "buy" ratings to Arista Networks (ANET.US), Coherent (COHR.US), and Ciena (CIEN.US), and a "hold" rating to Lumentum Holdings (LITE.US). The analyst team led by Sean O'Loughlin stated in the research report, "With solid underlying hardware and software design intellectual property, we believe Arista is poised to become the preferred supplier for both horizontal and vertical expansion switches based on Ethernet. The technical requirements for multi-tenant large-scale reasoning deployments are very high, and Arista's data-driven networking platform perfectly matches the demands of next-generation AI data centers." The firm also set a target price of 170 US dollars for Arista. O'Loughlin further explained, "One of the biggest misunderstandings in the market about Arista is underestimating its underlying hardware differentiation; using off-the-shelf chips does not mean its hardware lacks advantages. Switch chips are just one part of the whole system, and Arista's deep software-hardware co-design has made it the largest customer of two leading open-source network companies, Microsoft Corporation (MSFT.US) and Meta (META.US), over the past decade." Meanwhile, Coherent received a target price of 330 US dollars. With the widespread adoption of 800G/1.6T products and the deployment of Co-Packaged Optics (CPO) and Optical Circuit Switching (OCS) at scale, the company will continue to benefit from AI infrastructure demand. O'Loughlin pointed out, "The core advantage of Coherent's business model lies in integrating the former Finisar's optical module business with the former Coherent's laser business, achieving vertical integration of key components of optical modules. Importantly, Coherent does not sell self-developed lasers externally, but supplies them entirely to its own optical module business and purchases any shortfall from external suppliers such as Lumentum. We are optimistic about this model, as it can significantly alleviate concerns about excess laser capacity in the market - once there is excess capacity, Coherent can directly reduce external procurement." T.D. Cowen set a target price of 425 US dollars for Ciena, in part because of the company's recent acquisition of Nubis, further strengthening its capabilities for intra-data center interconnectivity. O'Loughlin said, "After acquiring Nubis, we believe Ciena has clear growth potential both horizontally and vertically. Unlike its peers, Ciena's business is all about added value. Other companies may face challenges with internal data center business, but horizontal and vertical expansion are purely new growth opportunities for Ciena." Finally, Lumentum received a target price of 675 US dollars. O'Loughlin admitted, "We have a long-term positive outlook on the company, but due to the significant expansion of InP product market leaders and the shifting demand towards Continuous Wave (CW) lasers, we have given a 'hold' rating. The expansion of wafer capacity combined with the shift in product structure towards smaller sizes and higher yields of CW lasers will greatly enhance the global InP industry's support for optical modules, potentially putting pressure on the commercial market due to oversupply."