AI drives the acceleration of the penetration of 800G optical modules, Bank of America is bullish on Cisco Systems, Inc. (CSCO.US) and Ciena (CIEN.US).

Bank of America Corp(BofA) raised the target price for Ciena (CIEN.US) and Cisco Systems, Inc. (CSCO.US) on Tuesday, as the investment bank believes that the growth momentum in the optical networking market remains "resilient." Analyst Tal Liani noted in a report to clients that Cisco Systems, Inc.'s recent announcement of its third-quarter performance for the fiscal year 2026, as well as the continued strong demand for Acacia business, has led the bank to maintain an optimistic view on the underlying demand environment for optical networks. Liani also maintained a "buy" rating for Ciena and Cisco Systems, Inc. Cisco Systems, Inc. announced its third-quarter financial results for the fiscal year 2026 on May 14, 2026, showing strong performance with double-digit revenue and profit growth exceeding previous guidance. The company achieved a record-breaking total revenue of $15.8 billion, a 12% year-on-year increase. Product revenue reached $12.1 billion, a 17% increase, driven mainly by strong demand for AI infrastructure and campus networks. Liani wrote that Cisco Systems, Inc. disclosed that Acacia orders in the third quarter exceeded $1 billion, with AI-related optical component revenue increasing nearly four times year-on-year to about $950 million; in addition, the demand for non-AI optical components from hyperscale data centers also contributed to additional growth. The bank anticipates the migration trend from 400G to 800G pluggable optical modules, believing that Cisco Systems, Inc. and Ciena are both well-positioned to maintain market share leadership in this rapidly growing optical networking cycle. The bank raised its profit forecasts for both companies to reflect their strong participation in AI-related infrastructure development in the optical networking sector. The target price for Cisco Systems, Inc. was raised from $114 to $135 (based on a 29x expected enterprise value/free cash flow for 2027, previously 25x), while the target price for Ciena was raised from $550 to $660 (based on a 69x expected P/E ratio for 2027, previously 62x). As hyperscale data center operators accelerate infrastructure upgrades, high-speed optical networking technologies like Network-1 Technologies, Inc. are rapidly migrating from 400G to 800G. Bank of America predicts that the global 800G ZR/ZR+ optical market will expand nearly tenfold in 2026, with its share in the overall optical market leaping from 4.6% in 2025 to 35.5% in 2026. Currently, Cisco Systems, Inc. holds over 50% market share in the 800G submarket, while Ciena holds around 30%; however, Ciena's market share is expected to continue to rise due to its more energy-efficient 3nm DSP technology. The strong performance of Cisco Systems, Inc.'s Acacia optical business best illustrates this trend - with third-quarter Acacia orders exceeding $1 billion, AI-related optical component revenue seeing nearly fourfold year-on-year growth, and shipments of 400G and 800G pluggable optical modules surpassing 750,000 and 40,000 respectively, achieving a year-on-year growth of over 200% for the entire fiscal year 2026.