BofA downgraded Ciena’s (CIEN) stock to Neutral from Buy while highlighting the 2026 outlook for Networking and Telecom Equipment stocks.
The firm said that beyond today’s general purpose AI models, the next wave of agentic AI will require even more sophisticated architectures, driving incremental investment in scale up, scale out, and scale across fabrics.
Analysts led by Tal Liani noted that Gartner forecasts AI networking spend to grow at a 28% Compound Annual Growth Rate, or CAGR, through 2029 to $56.6B, with Ethernet and optical interconnects becoming critical enablers of distributed AI clusters.
“While the big picture is exciting, the near-term setup is more challenging in our view. Hyperscaler Capex growth is expected to decelerate from 68% in 2025 to 39% in 2026; valuations of networking stocks have surged well beyond historical norms; revenue growth will likely remain strong, but we expect stocks to trade on order trends, backlog, and deferred revenue trends which is a key risk, given the peak level of these metrics,” said Liani and his team.
The analysts noted that enterprise adoption of agentic AI is a key factor for continued network investments, but they remain cautious and flagged some hurdles that can slow deployment and consumption.
Firstly, data readiness is a gating factor, as many companies lack clean, consistent, well-structured data with unified identity, permissions, and policy layers. Secondly, operational readiness remains limited. Companies still need to implement controls, approval workflows, audit trails, and clear decision rights required to let agents act independently, the analysts noted.
Thirdly, lack of relevant cybersecurity measures to manage access privileges, credentials, secrets, and carry stronger data protection practices. Lastly, agentic AI changes the pricing paradigm, shifting from the predictable seat/license pricing to consumption-based models, likely prompting customers to commit conservatively initially and ramp gradually while monitoring Return on Investment, or ROI, the analysts added.
Ciena (CIEN)
“We downgrade Ciena from Buy to Neutral, despite additional revenue growth upside, as we focus instead on downside risk to peaking backlog levels, high expectations, and a rich valuation,” said Liani and his team.
The analysts noted that the deployment plans of key cloud and neocloud leaders remain strong, but high valuation levels, peak margins, risk of slower order/backlog trends and the risk of some rationalization in spending as network providers wait for demand to ramp all lead them to be more cautious with their stocks.
“We believe Cisco (CSCO) provides a solid risk/reward profile but also isn’t a pure play on AI deployments; We flag risks with Arista (ANET) but expect near term trends to remain strong with upside to revenue growth estimates,” said Liani and his team.
Shares of Ciena were largely flat but in the green on Tuesday.