Ciena, Lumentum, Corning Ride the AI Wave. Here's How Powell Could 'Help'
Fiber-optic networking stocks rallied on Lumentum’s bullish revenue forecast. Now, a pullback could make some of these more attractive.
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Raise Your Sell Stops on Corning
Outgoing Fed Chairman Jerome Powell made it very clear: Investors shouldn’t expect any help from the Fed in the near term.
Powell, whose term as Fed Chairman is scheduled to end on May 15, is focused on inflation. In addition to rising oil prices bleeding into core inflation, Powell mentioned the ongoing AI buildout as a potential catalyst for rising prices.
Related: Fed Chair Jerome Powell Reveals Intent to Stay While Detailing Rate Cut Decision
Just Getting Started
According to Nvidia (NVDA) CEO Jason Huang, the AI infrastructure buildout is just getting started. High-speed fiber optic networking is a big part of that buildout.
Just one month ago, I named Ciena, Lumenem, and Corning as my top three picks in the fiber optics space. Since then, Ciena has gained 23%, Lumentum has climbed by about 16%, and Corning is basically flat.
Despite a very red market, Ciena shares roared to an all-time high on Wednesday, climbing by about 4%. Shares of the Maryland-based networker have already gained 56% this year.
Earlier this month, Ciena crushed estimates by earning $1.35 per share for the quarter ended in January. Analysts were looking for just $1.16 per share.
Lumentum Builds Momentum
Ciena hitched a ride on a new forecast by competitor Lumentum Holdings (LITE) . Lumentum shares jumped by nearly 8% on Wednesday, as the company issued strong forward guidance. Lumentum predicts its quarterly revenue will soar from $805 million to $2 billion within the next two years.
Ciena and Lumentum provide the equipment needed to move and manage vast amounts of data. Corning (GLW) is also in this space, but hasn’t seen the same explosive growth as Ciena and Lumenum. This is because Corning’s business mix is diversified, while Ciena and Luminem are heavily focused on AI infrastructure.
The Bigger Picture
The S&P 500, hammered by Powell’s comments, has fallen out of its trading range (shaded yellow) to close at its lowest level in nearly four months. The large-cap index closed about 10 points above its 200-day moving average (red).
If that 200-day moving average breaks, it could create a buying opportunity for these companies. What is the entry price for each name?
The Bottom Line
I’d buy any of these three names on a decline to their respective 50-day moving averages. For Ciena, that’s $291. Lumentum comes in at $524, and Corning at $119.
For these names to reach their respective entry points, a deeper pullback is required. Will that happen? I’m not predicting a market decline, but now I have some buy prices in mind, just in case we see a deeper selloff.
At the time of publication, Ponsi had no position in any security mentioned.
