Wall Street Unveils AI Winners: Arista And Ciena Lead A Multi-Billion Dollar Backbone Explosion

Needham analyst Ryan Koontz said several networking and optical technology companies are positioned to benefit from rising hyperscale cloud spending as artificial intelligence infrastructure continues to expand.

He identified Arista Networks, Inc, Ciena Corp, Lumentum Holdings Inc, Applied Optoelectronics, Inc, Coherent Corp, Viavi Solutions Inc, and Fabrinet as among the companies most exposed to growing hyperscaler investment.

Arista And Ciena Positioned For AI Network Expansion

Koontz said Arista Networks generates about 54% of its revenue from hyperscale customers, including Microsoft Corp and Meta Platforms Inc, which accounted for 26% and 16% of 2025 revenue, respectively.

The analyst noted that Arista's switching hardware and operating system remain highly competitive in traditional cloud networks, where Microsoft increased spending significantly in 2025.

The company is also expanding its role in AI networking and raised its 2026 AI revenue target from $2.75 billion to $3.25 billion.

He added that Arista's Jericho-based products could play an important role in large "scale-across" networking projects that connect GPU clusters across multiple campuses.

Koontz also highlighted Ciena as a key beneficiary of hyperscale networking investments.

In the company's first quarter of fiscal 2026, direct cloud providers accounted for 42% of Ciena's revenue, while global telecom and cable customers made up most of the remainder.

Ciena has secured wins with three of the four major cloud operators for large-scale networking projects that link AI data centers across wide-area networks. Koontz said these "scale-across" projects could support a long-term revenue opportunity as AI infrastructure expands.

Optical Component Makers See Strong Demand

The analyst expects strong demand for optical components to benefit companies such as Lumentum, Applied Optoelectronics, and Coherent as hyperscalers upgrade networking speeds.

He said Lumentum generates about half of its revenue from datacom products and around 40% from telecom equipment.

The company is expanding production of electro-absorption modulated lasers (EMLs), which are widely used in high-speed optical transceivers.

Lumentum has also secured significant demand for optical circuit switching (OCS) systems, with a backlog exceeding $400 million, much of which is expected to ship in the second half of 2026.

Koontz also highlighted Applied Optoelectronics as another beneficiary of hyperscale spending. Data center products accounted for 43% of the company's 2025 revenue, rising to 56% in the fourth quarter as demand increased.

Microsoft remains AAOI's largest transceiver customer, but Koontz said Amazon could become a major customer as the company ramps 400G and 800G optical transceivers.

AAOI recently received $200 million in initial orders for its 1.6T transceiver, with shipments expected in the second half of 2026.

The analyst raised the firm's price forecast to $130 from $80.

He also pointed to Coherent, which derives roughly 50% of its revenue from datacom and about 20% from telecom markets.

The company supplies optical transceivers and components to major hyperscale customers, including Microsoft, Alphabet Inc, Google, Amazon.com Inc, and Nvidia Corp.

Coherent is also expanding its 6-inch indium phosphide fabrication facility, which could significantly increase production capacity and reduce manufacturing costs.

Manufacturing And Testing Suppliers Benefit From AI Buildout

Koontz said Fabrinet and Viavi Solutions also stand to benefit from hyperscale investment.

Fabrinet generates about 35% of its revenue from data center products and 49% from telecom equipment, both of which depend heavily on hyperscaler spending.

The company manufactures optical transceivers used in Nvidia systems and supports the ramp of Amazon's Trainium chip infrastructure, which Koontz expects could generate more than $150 million in quarterly revenue as production scales.

Meanwhile, Viavi Solutions derives about 45% of revenue in its Network and Service Enablement segment from the data center ecosystem, including optical modules and semiconductor components.

The analyst said the company's acquisition of high-speed Ethernet testing products expands its ability to support new optical networking speeds.

As data center networks transition to faster optical connections, demand for testing equipment is expected to increase because each new speed generation requires updated tools.

Overall, he said hyperscale capital spending and AI infrastructure expansion should continue driving demand across the networking and optical supply chain, positioning these companies to benefit from long-term cloud and AI growth.

Price Actions: Ciena shares were up 7.71% at $343.10 at the time of publication on Tuesday. Arista Networks shares were up 2.39% at $140.44.

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This article originally appeared on Benzinga.com