UBS Group AG explores the AI computing power industry chain: orders are full, supply is constrained. Reports from companies such as Arista (ANET.US) are expected to bring surprises.

Data center infrastructure investment is entering an accelerated phase, UBS Group AG released a forward-looking report on Tuesday, analyzing the performance prospects of four networking and optical communication companies including Arista Networks (ANET.US), Celestica Inc. (CLS.US), Extreme Networks, Inc. (EXTR.US), and Lumentum (LITE.US). The core highlight of the industry is the strong demand for products such as switches, with the revenue of most targets expected to exceed institutional expectations, but supply chain bottlenecks have become a common issue restricting the realization of overall industry performance. UBS Group AG analyst David Vogt wrote in the report, "In the past three months, global data center infrastructure investment has continued to accelerate, likely driving industry demand/orders and backlog orders to increase simultaneously. However, longer delivery cycles for core components such as network chips, CPUs, as well as key materials like indium phosphide (InP) may inhibit revenue growth, as surveys show that companies are unable to fully meet potential demand." The analyst added, "Our industry survey shows that demand for data center network switches has strengthened in the past few months, providing support for Arista and Celestica Inc.'s strong quarterly performance and future outlook, despite Broadcom Inc.'s network chip shortage. For Extreme Networks, Inc., demand for wired networking and WiFi businesses remains strong, and the company's revenue is expected to slightly exceed expectations. At the level of the optical communication industry chain, the increase in output of optical circuit switch (OCS), as well as strong demand for transmitter and receiver components such as EML and pump laser diodes, will bring positive performance for Lumentum. However, the survey also shows that optical communication supply chain bottlenecks have not been resolved, which could limit order conversion to revenue." Vogt further analyzed that Arista will benefit from establishing and deepening cooperation with large cloud service providers and new cloud platforms, which will drive its revenue and profits beyond expectations. He added, "More importantly, as a result of steadily increasing orders over the past 9-12 months and accelerated growth in deferred revenue, we expect the company's revenue growth guidance for the fiscal year 2026 to be raised from 27.5% to 33%." For Celestica Inc., the situation is slightly different, as recent channel surveys show that the supply chain adverse factors that previously troubled the company have eased. Vogt said, "Our quarterly tracking survey shows that the supply chain issues that dragged down server/tensor processing unit (TPU) revenue last quarter have been resolved; and the demand for Ethernet switches from Meta and Amazon.com, Inc. remains strong. Therefore, our analysis suggests that Celestica Inc.'s revenue for this quarter may exceed expectations by 3% to 4%, reaching around $4.5 billion; corresponding EPS is expected to increase by about 5% from our forecast of $2.29 to $2.40, also higher than the company's guidance range of $2.14 to $2.34." The market demand for Extreme Networks, Inc.'s wired and wireless network equipment is "strong," Vogt believes this will drive the company's revenue beyond expectations, and close to the upper limit of the company's previous guidance of $335 million. Vogt explained, "Potential revenue growth and margin improvement from pricing strategies should result in earnings slightly higher than our previous forecast of $0.29 per share, with the company's guidance range at $0.28-0.30. However, we note that the current stock price has priced in the positive news of exceeding expectations and raising guidance. For the fiscal year 2027, we expect the company to give revenue guidance of $1.37 billion to $1.4 billion, representing a year-over-year growth of about 8% from the mid-point of our previous expectation of $1.37 billion, the market consensus of $1.388 billion, and investors' performance expectations may be slightly higher." Vogt also stated that Lumentum's revenue from optical circuit switch is steadily increasing, and demand for 200G EML (Electro-absorption Modulated Laser) remains hot, which is expected to drive its revenue to exceed $1 billion. Vogt wrote, "Although supply constraints may lead to lower shipments than potential demand for Lumentum, operational leverage will dilute unit costs, pushing diluted EPS higher by 3%-4% than our previous expectation of $3. For the quarter ending on September 26, we expect the company's revenue to be between $1.15 billion and $1.2 billion, slightly higher than our previous expectation of $1.149 billion, representing a year-over-year growth of about 120% from the mid-point. Despite some supply constraints, investor expectations for performance are still slightly higher."