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Ciena vs. Nokia: Which Optical Networking Stock is the Better Buy?
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Key Takeaways
Ciena and Nokia benefit from surging AI and cloud demand, with both seeing strong optical networking growth.
Ciena expects 30% revenue growth in fiscal 2027, backed by an $8.5 billion backlog and cloud demand.
Nokia targets 25-30% Optical and IP Networks growth in 2027, but supply constraints and costs are woes.
Ciena Corporation (CIEN - Free Report) and Nokia Corporation (NOK - Free Report) are benefiting from accelerating demand for optical networking solutions as AI, cloud infrastructure expansion and rising bandwidth requirements drive investments in high-speed connectivity. Both companies are witnessing strong demand from hyperscalers and telecom operators for optical networking equipment, data center interconnect solutions and next-generation technologies. Ciena is capitalizing on its leadership in coherent optics and expanding its optical systems portfolio, while Nokia is strengthening its position through growing adoption of its optical and IP networking solutions.
Both companies have reported strong growth in their optical networking businesses, supported by rising customer orders and expanding opportunities in AI-driven network infrastructure. However, supply constraints and the need to expand manufacturing capacity remain key challenges.
With both companies positioning themselves to capture growing demand for high-speed connectivity, let us examine their growth prospects and challenges to determine which optical networking stock offers a more attractive investment opportunity.
The Case for CIEN
Ciena is gaining from robust demand for high-speed optical networking solutions, fueled by accelerating AI investments, rising bandwidth requirements and expanding data center infrastructure. The company is benefiting from the growing need for high-capacity, low-latency connectivity across traditional wide-area networks, AI-driven networks and data centers. Increasing adoption of AI applications, distributed training and inference workloads is creating significant opportunities for its optical networking portfolio. Management expects its total addressable market to double from $25 billion to $50 billion by 2029. Ciena's strong technological expertise, broad product portfolio and established customer relationships position it well to capitalize on these opportunities and expand its market share.
Ciena is witnessing strong momentum across its optical networking portfolio, particularly WaveLogic 6 Extreme, Reconfigurable Line Systems (RLS) and Waveserver platforms. The adoption of WaveLogic 6 Extreme, its 1.6-terabit high-performance modem, has already surpassed that of its predecessor, WaveLogic 5 Extreme. The company's RLS platform commands approximately 70% market share in disaggregated optical line systems, reflecting its competitive strength. Its next-generation RLS Hyper-Rail platform, designed to support distributed AI training across data centers, is also gaining traction among hyperscale customers. Management expects initial customer standardization by the end of calendar 2026, followed by a meaningful revenue ramp in 2027. Hyper-Rail is expected to generate several hundred million dollars in revenues during fiscal 2027 while supporting further margin expansion.
Ciena is benefiting from increasing investments by hyperscalers and cloud service providers in data center connectivity infrastructure. In the third quarter of fiscal 2026, direct cloud provider revenues surged more than 80% year over year, while interconnects revenues more than doubled. Its WaveLogic 5 Nano pluggable optics portfolio is witnessing solid adoption, with shipments of 800ZR pluggables more than doubling sequentially during the quarter.
The company is also advancing its emerging interconnect offerings, including Nitro linear redrivers and Vesta co-packaged optics solutions. Vesta has received sample orders from several anchor customers, with revenues expected to begin in 2027 and accelerate in 2028. These developments strengthen Ciena's position in the rapidly expanding market for optical connectivity inside and around data centers.
Ciena's expanding order backlog and improving demand visibility provide a solid foundation for sustained revenue growth. The company exited the third quarter with an $8.5 billion backlog, reflecting an $800 million sequential increase, and expects the figure to exceed $10 billion by the end of fiscal 2026. Strong customer commitments extending through 2029 further underscore the durability of demand. The company has also secured long-term agreements for critical components to support increasing production requirements. Supported by these developments, management anticipates fiscal 2027 revenues of at least $8.3-$8.4 billion, representing minimum year-over-year growth of 30%. Adjusted operating margin is projected to reach 25-27%, reflecting improving operating leverage and profitability.
Ciena is also benefiting from recovering investments in optical infrastructure by traditional service providers and growing managed optical fiber network (MOFN) deployments. Hyperscalers are increasingly investing in dedicated network infrastructure across North America and international markets, including India, Japan and the Middle East. The company is witnessing strong demand for optical connectivity in submarine networks, where it holds a leading market position. Increasing network modernization requirements and the expansion of AI-related traffic are expected to support steady service provider growth over the next several years. These trends, coupled with its strong presence in data center interconnect and optical transport technologies, reinforce Ciena's long-term growth prospects.
Image Source: Zacks Investment Research
However, Ciena faces challenges from persistent supply constraints amid unprecedented demand for optical networking equipment. Limited availability of critical components is restricting its ability to fulfill customer orders and could constrain revenue growth despite a substantial backlog. Management expects the supply-demand imbalance to continue through fiscal 2027 and potentially into 2028.
The company is making significant investments to secure additional manufacturing capacity and component supply, which are expected to weigh on operating cash flow in the fourth quarter of fiscal 2026. Moreover, the third-quarter adjusted gross margin benefited from a one-time tariff-related refund of approximately 70 basis points (bps), which is not expected to recur. Potential exposure to changes in Canadian tariffs could also create additional cost pressures, although management is exploring mitigation measures.
The Case for NOK
Nokia is gaining from robust demand for AI and cloud infrastructure, supported by growing investments in data center connectivity and high-performance networking solutions. In the third quarter of 2026, AI and cloud revenues surged 123% year over year, accounting for 12% of total net sales. Gross order intake from this customer segment increased 118% to €1.5 billion, reflecting sustained demand from hyperscalers and cloud customers. IP Networks revenues grew 43%, driven by the conversion of earlier design wins into revenues, while Optical Networks recorded 18% growth. With demand remaining strong across front-end networking, scale-across infrastructure and data center interconnect, Nokia expects its combined Optical and IP Networks businesses to grow 25-30% in 2027, highlighting favorable long-term growth prospects.
The company is benefiting from continued innovation and expanding customer engagements across its optical and IP networking portfolio. Demand for its 800G coherent pluggables remains strong, with shipment volumes more than doubling sequentially and design wins secured with 29 customers. The company also secured a significant optical line systems contract with a large hyperscaler and three design wins for its multi-rail technology, which offers 25% higher density than competing solutions. In IP Networks, Nokia added two hyperscaler design wins, including a next-generation data center gateway contract. Significant telecom customer wins across Japan, Europe and the United States further underscore its growing traction in edge and core routing, IP aggregation and 5G backhaul. These developments strengthen Nokia's competitive position as enterprises and telecom operators expand their infrastructure to accommodate rising AI-driven data traffic.
Nokia's increasing focus on AI-native networks and next-generation wireless technologies presents additional growth opportunities. Its collaboration with NVIDIA is accelerating the development of AI-RAN solutions, combining Nokia's AI-native anyRAN software with NVIDIA's Aerial RAN Computer platform. Recent milestones include T-Mobile's first live voice call over AI-RAN on its production network and Elisa's successful simultaneous operation of voice, mobile data and AI workloads on a common AI-RAN platform. Nokia has demonstrated spectral efficiency improvements exceeding 20% in live environments and is targeting a 100% improvement by 2028. With 19 customers actively engaged in AI-RAN initiatives, the company is positioning itself to capitalize on emerging opportunities in AI-powered wireless networks, industrial automation and future 6G deployments.
The company’s profitability is benefiting from improving operating leverage, disciplined portfolio management and ongoing restructuring initiatives. In the third quarter, net sales increased 9%, while comparable operating margin expanded 220 bps to 11.7%, supported by higher revenues and operational efficiencies. The company is prioritizing higher-margin offerings while reducing its exposure to less profitable businesses. The integration of Infinera is largely complete, and Nokia remains on track to achieve €200 million in synergies by the end of 2026, a year ahead of schedule. Accelerated restructuring in Europe and the integration of its China operations are expected to further streamline costs. These initiatives, along with investments in optical manufacturing capacity, should support improved operating efficiency and long-term profitability.
Image Source: Zacks Investment Research
However, Nokia faces challenges from supply-chain constraints, rising component costs and near-term margin pressures. Despite strong demand, supply limitations continue to restrict its ability to fulfill additional orders, particularly across Optical and IP Networks. The company is also experiencing broad-based cost inflation involving advanced semiconductor components, memory and printed circuit boards. Network Infrastructure gross margin contracted 150 bps to 41.2% in the third quarter, primarily due to an unfavorable product mix and costs associated with ramping new AI and cloud products in IP Networks. Although management expects gross margin to improve in the fourth quarter, persistent supply shortages and elevated input costs could weigh on profitability and constrain revenue growth.
Nokia also faces headwinds from weakness in certain businesses, subdued telecom spending and mounting cash flow pressures. Fixed Networks revenues declined 22% in the third quarter, reflecting the company's decision to reduce exposure to lower-margin customer premises equipment offerings, while Core Software revenues fell 13% amid portfolio rationalization and project delays caused by server infrastructure supply constraints.
Management expects the broader telecom market to remain largely flat, limiting near-term growth opportunities outside AI-driven network investments. Free cash flow was negative €99 million in the quarter due to restructuring payments and higher working capital requirements. Nokia now expects approximately €1.1 billion in restructuring charges in 2026 and plans to invest an additional €400 million in working capital compared with its initial expectations. Consequently, the company expects free cash flow conversion of 35-55% for 2026, highlighting continued pressure on cash generation.
CIEN Shares vs. NOK
Over the past year, CIEN shares have soared 80.2% while Nokia surged 26.7%.
Image Source: Zacks Investment Research
Valuation for CIEN & NOK
In terms of Price/Book, CIEN shares are trading at 14.97X, higher than NOK’s 1.83X.
Image Source: Zacks Investment Research
How Do Zacks Estimates Compare for CIEN & NOK?
Analysts have significantly revised their earnings estimates upward for CIEN’s bottom line for the current year.
Image Source: Zacks Investment Research
For NOK, there have been no revisions in current-year estimates.
Image Source: Zacks Investment Research
CIEN or NOK: Which Stock to Bet On?
CIEN sports a Zacks Rank #1 (Strong Buy), while NOK has a Zacks Rank #3 (Hold). Despite its premium valuation, CIEN appears to be the better pick at the moment, supported by stronger growth prospects and positive earnings estimate revisions.
View the Zacks #1 Rank List
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Ciena vs. Nokia: Which Optical Networking Stock is the Better Buy?
Key Takeaways
Ciena Corporation (CIEN - Free Report) and Nokia Corporation (NOK - Free Report) are benefiting from accelerating demand for optical networking solutions as AI, cloud infrastructure expansion and rising bandwidth requirements drive investments in high-speed connectivity. Both companies are witnessing strong demand from hyperscalers and telecom operators for optical networking equipment, data center interconnect solutions and next-generation technologies. Ciena is capitalizing on its leadership in coherent optics and expanding its optical systems portfolio, while Nokia is strengthening its position through growing adoption of its optical and IP networking solutions.
Both companies have reported strong growth in their optical networking businesses, supported by rising customer orders and expanding opportunities in AI-driven network infrastructure. However, supply constraints and the need to expand manufacturing capacity remain key challenges.
With both companies positioning themselves to capture growing demand for high-speed connectivity, let us examine their growth prospects and challenges to determine which optical networking stock offers a more attractive investment opportunity.
The Case for CIEN
Ciena is gaining from robust demand for high-speed optical networking solutions, fueled by accelerating AI investments, rising bandwidth requirements and expanding data center infrastructure. The company is benefiting from the growing need for high-capacity, low-latency connectivity across traditional wide-area networks, AI-driven networks and data centers. Increasing adoption of AI applications, distributed training and inference workloads is creating significant opportunities for its optical networking portfolio. Management expects its total addressable market to double from $25 billion to $50 billion by 2029. Ciena's strong technological expertise, broad product portfolio and established customer relationships position it well to capitalize on these opportunities and expand its market share.
Ciena is witnessing strong momentum across its optical networking portfolio, particularly WaveLogic 6 Extreme, Reconfigurable Line Systems (RLS) and Waveserver platforms. The adoption of WaveLogic 6 Extreme, its 1.6-terabit high-performance modem, has already surpassed that of its predecessor, WaveLogic 5 Extreme. The company's RLS platform commands approximately 70% market share in disaggregated optical line systems, reflecting its competitive strength. Its next-generation RLS Hyper-Rail platform, designed to support distributed AI training across data centers, is also gaining traction among hyperscale customers. Management expects initial customer standardization by the end of calendar 2026, followed by a meaningful revenue ramp in 2027. Hyper-Rail is expected to generate several hundred million dollars in revenues during fiscal 2027 while supporting further margin expansion.
Ciena is benefiting from increasing investments by hyperscalers and cloud service providers in data center connectivity infrastructure. In the third quarter of fiscal 2026, direct cloud provider revenues surged more than 80% year over year, while interconnects revenues more than doubled. Its WaveLogic 5 Nano pluggable optics portfolio is witnessing solid adoption, with shipments of 800ZR pluggables more than doubling sequentially during the quarter.
The company is also advancing its emerging interconnect offerings, including Nitro linear redrivers and Vesta co-packaged optics solutions. Vesta has received sample orders from several anchor customers, with revenues expected to begin in 2027 and accelerate in 2028. These developments strengthen Ciena's position in the rapidly expanding market for optical connectivity inside and around data centers.
Ciena's expanding order backlog and improving demand visibility provide a solid foundation for sustained revenue growth. The company exited the third quarter with an $8.5 billion backlog, reflecting an $800 million sequential increase, and expects the figure to exceed $10 billion by the end of fiscal 2026. Strong customer commitments extending through 2029 further underscore the durability of demand. The company has also secured long-term agreements for critical components to support increasing production requirements. Supported by these developments, management anticipates fiscal 2027 revenues of at least $8.3-$8.4 billion, representing minimum year-over-year growth of 30%. Adjusted operating margin is projected to reach 25-27%, reflecting improving operating leverage and profitability.
Ciena is also benefiting from recovering investments in optical infrastructure by traditional service providers and growing managed optical fiber network (MOFN) deployments. Hyperscalers are increasingly investing in dedicated network infrastructure across North America and international markets, including India, Japan and the Middle East. The company is witnessing strong demand for optical connectivity in submarine networks, where it holds a leading market position. Increasing network modernization requirements and the expansion of AI-related traffic are expected to support steady service provider growth over the next several years. These trends, coupled with its strong presence in data center interconnect and optical transport technologies, reinforce Ciena's long-term growth prospects.
Image Source: Zacks Investment Research
However, Ciena faces challenges from persistent supply constraints amid unprecedented demand for optical networking equipment. Limited availability of critical components is restricting its ability to fulfill customer orders and could constrain revenue growth despite a substantial backlog. Management expects the supply-demand imbalance to continue through fiscal 2027 and potentially into 2028.
The company is making significant investments to secure additional manufacturing capacity and component supply, which are expected to weigh on operating cash flow in the fourth quarter of fiscal 2026. Moreover, the third-quarter adjusted gross margin benefited from a one-time tariff-related refund of approximately 70 basis points (bps), which is not expected to recur. Potential exposure to changes in Canadian tariffs could also create additional cost pressures, although management is exploring mitigation measures.
The Case for NOK
Nokia is gaining from robust demand for AI and cloud infrastructure, supported by growing investments in data center connectivity and high-performance networking solutions. In the third quarter of 2026, AI and cloud revenues surged 123% year over year, accounting for 12% of total net sales. Gross order intake from this customer segment increased 118% to €1.5 billion, reflecting sustained demand from hyperscalers and cloud customers. IP Networks revenues grew 43%, driven by the conversion of earlier design wins into revenues, while Optical Networks recorded 18% growth. With demand remaining strong across front-end networking, scale-across infrastructure and data center interconnect, Nokia expects its combined Optical and IP Networks businesses to grow 25-30% in 2027, highlighting favorable long-term growth prospects.
The company is benefiting from continued innovation and expanding customer engagements across its optical and IP networking portfolio. Demand for its 800G coherent pluggables remains strong, with shipment volumes more than doubling sequentially and design wins secured with 29 customers. The company also secured a significant optical line systems contract with a large hyperscaler and three design wins for its multi-rail technology, which offers 25% higher density than competing solutions. In IP Networks, Nokia added two hyperscaler design wins, including a next-generation data center gateway contract. Significant telecom customer wins across Japan, Europe and the United States further underscore its growing traction in edge and core routing, IP aggregation and 5G backhaul. These developments strengthen Nokia's competitive position as enterprises and telecom operators expand their infrastructure to accommodate rising AI-driven data traffic.
Nokia's increasing focus on AI-native networks and next-generation wireless technologies presents additional growth opportunities. Its collaboration with NVIDIA is accelerating the development of AI-RAN solutions, combining Nokia's AI-native anyRAN software with NVIDIA's Aerial RAN Computer platform. Recent milestones include T-Mobile's first live voice call over AI-RAN on its production network and Elisa's successful simultaneous operation of voice, mobile data and AI workloads on a common AI-RAN platform. Nokia has demonstrated spectral efficiency improvements exceeding 20% in live environments and is targeting a 100% improvement by 2028. With 19 customers actively engaged in AI-RAN initiatives, the company is positioning itself to capitalize on emerging opportunities in AI-powered wireless networks, industrial automation and future 6G deployments.
The company’s profitability is benefiting from improving operating leverage, disciplined portfolio management and ongoing restructuring initiatives. In the third quarter, net sales increased 9%, while comparable operating margin expanded 220 bps to 11.7%, supported by higher revenues and operational efficiencies. The company is prioritizing higher-margin offerings while reducing its exposure to less profitable businesses. The integration of Infinera is largely complete, and Nokia remains on track to achieve €200 million in synergies by the end of 2026, a year ahead of schedule. Accelerated restructuring in Europe and the integration of its China operations are expected to further streamline costs. These initiatives, along with investments in optical manufacturing capacity, should support improved operating efficiency and long-term profitability.
Image Source: Zacks Investment Research
However, Nokia faces challenges from supply-chain constraints, rising component costs and near-term margin pressures. Despite strong demand, supply limitations continue to restrict its ability to fulfill additional orders, particularly across Optical and IP Networks. The company is also experiencing broad-based cost inflation involving advanced semiconductor components, memory and printed circuit boards. Network Infrastructure gross margin contracted 150 bps to 41.2% in the third quarter, primarily due to an unfavorable product mix and costs associated with ramping new AI and cloud products in IP Networks. Although management expects gross margin to improve in the fourth quarter, persistent supply shortages and elevated input costs could weigh on profitability and constrain revenue growth.
Nokia also faces headwinds from weakness in certain businesses, subdued telecom spending and mounting cash flow pressures. Fixed Networks revenues declined 22% in the third quarter, reflecting the company's decision to reduce exposure to lower-margin customer premises equipment offerings, while Core Software revenues fell 13% amid portfolio rationalization and project delays caused by server infrastructure supply constraints.
Management expects the broader telecom market to remain largely flat, limiting near-term growth opportunities outside AI-driven network investments. Free cash flow was negative €99 million in the quarter due to restructuring payments and higher working capital requirements. Nokia now expects approximately €1.1 billion in restructuring charges in 2026 and plans to invest an additional €400 million in working capital compared with its initial expectations. Consequently, the company expects free cash flow conversion of 35-55% for 2026, highlighting continued pressure on cash generation.
CIEN Shares vs. NOK
Over the past year, CIEN shares have soared 80.2% while Nokia surged 26.7%.
Image Source: Zacks Investment Research
Valuation for CIEN & NOK
In terms of Price/Book, CIEN shares are trading at 14.97X, higher than NOK’s 1.83X.
Image Source: Zacks Investment Research
How Do Zacks Estimates Compare for CIEN & NOK?
Analysts have significantly revised their earnings estimates upward for CIEN’s bottom line for the current year.
Image Source: Zacks Investment Research
For NOK, there have been no revisions in current-year estimates.
Image Source: Zacks Investment Research
CIEN or NOK: Which Stock to Bet On?
CIEN sports a Zacks Rank #1 (Strong Buy), while NOK has a Zacks Rank #3 (Hold). Despite its premium valuation, CIEN appears to be the better pick at the moment, supported by stronger growth prospects and positive earnings estimate revisions.
You can see the complete list of today’s Zacks #1 Rank stocks here.