Hoping OCP will drive a rally? Morgan Stanley warns: the architecture battle may be settled, and short-term catalysts for the optical communications industry have already been priced in.

Notice that the annual Open Compute Project (OCP) Global Summit will kick off next Monday. As the most influential "bellwether"-level conference in the data center and AI networking space, this year's OCP carries exceptionally high expectationswhether hyperscale cloud providers can provide clear answers on next-generation AI network architecture, and whether the commercialization timeline for NPO/CPO (Near-Package Optics/Co-Packaged Optics) can be finalized, will directly determine the future direction of the entire optical communications and network equipment industry chain. Morgan Stanley offered its assessment in its latest OCP preview report: the conference is expected to "clear the clouds" on AI network design direction, but the short-term stock price impact on individual names may be limited. Morgan Stanley analyst Meta Marshall pointed out the unique value of this year's OCP. Unlike other trade shows throughout the year that mostly showcase products from a supplier perspective, OCP's uniqueness lies in hyperscale cloud providers "stepping onto the stage themselves," articulating their architecture evolution direction from the customer's perspective. Marshall expects that keynote speeches from giants including Microsoft Corporation (MSFT.US), Meta (META.US), Alphabet Inc. Class C (GOOGL.US), and Oracle Corporation (ORCL.US) will be the biggest highlights, focusing on two major topics: first, how each company can find a "common solution" to shared challenges including power, thermal management, cost, cabling, and ecosystem as they migrate to higher-speed data center networks; second, the closely watched scale-up network architecture, which is precisely the segment undergoing the most dramatic evolution. Morgan Stanley specifically noted that intense debates are expected at the conference around interconnect fabrics, the trade-offs between copper cables and Optical Cable Corporation, and the commercialization timeline and architecture roadmaps for CPO/NPO. These three major topics are precisely the most core and most divisive points of contention in the current AI network industry chain. NPO/CPO: Core Debate Continues After ECOC The report made clear that NPO/CPO remains the core point of contention following the European Conference on Optical Communication (ECOC), with the commercialization timeline and deployment path being the focus. Although related discussions continue to heat up, Morgan Stanley remains cautious in its assessment: ongoing network innovation and product launches are expected at the conference, but without more definitive customer commitments materializing, short-term stock price catalysts are limited. Morgan Stanley believes that supply chain expansion, increased customer adoption rates, and gross margin improvement are the key variables driving individual stocks. In terms of positioning, it continues to prefer Keysight Technologies Inc (KEYS.US), while Lumentum (LITE.US) and Coherent Corp. (COHR.US) are viewed as more sensitive to the NPO/CPO roadmap. The differentiation logic: Keysight Technologies Inc, as a test and measurement leader, will benefit from testing demand regardless of which technology route prevails, possessing "route-neutral" attributes; while Lumentum and Coherent Corp. are directly exposed to the game around NPO/CPO deployment pace, with both upside potential and uncertainty coexisting. Short-Term Catalysts Already "Priced In" Worth noting as a caution, Morgan Stanley flagged OCP's inherent "headline risk"particularly for companies like Arista Networks, Inc. (ANET.US) that are deeply tied to cloud providers. However, the report also noted that the sector has posted positive performance in recent weeks, and stock price gains may have already reflected potential conference positives in advance, meaning "expectation realization" upside may be partially exhausted. Its overall industry rating is "In-Line." Keysight Technologies Inc (KEYS.US) is Morgan Stanley's top sector pick, maintaining an "Overweight" rating with a price target of $13.30. As a test and measurement leader, its "route-neutral" attribute means it will benefit regardless of which technology pathNPO or CPOprevails, making it a safe haven amid AI network uncertainty. Morgan Stanley maintains an "Overweight" rating on Arista Networks, Inc. (ANET.US) with a price target of $220, based on 47x 2027 expected P/E (or approximately 40x 2028 expected P/E). This valuation carries a premium relative to networking peers, reflecting its high growth, hyperscale data center cycle, and AI opportunity, but is closer to optical module/AI peers. However, its customer base is highly concentrated in Microsoft Corporation and Meta, constituting a core downside risk. Morgan Stanley maintains "Equal-weight" ratings on Coherent Corp. (COHR.US) and Lumentum (LITE.US), which Morgan Stanley views as more sensitive to the NPO/CPO roadmap. Coherent Corp.'s price target is based on approximately 28x FY28 baseline EPS (approximately $13.3), and Lumentum's is based on 25x 2028 P/E (approximately $40). Both valuations carry premiums relative to historical ranges due to AI growth prospects.