Ciena’s role is different than the many “inside-the-data-center" networking stocks the I/O Fund covers as instead of offering networking fabrics at the system level, Ciena offers optical transport across data centers and metro regions. While AI training is already pushing hyperscalers to connect clusters across data center sites, inference offers another leg up for metro/long-haul networking as workloads will be distributed across many data centers to scale significant application usage, especially as agents necessitate responsiveness and reducing latency.
This quarter, Ciena proved it's a leader in data center interconnects with $1.43 billion in revenue and $1.35 in adjusted EPS – more than doubling year-over-year. Optical revenue grew 41% YoY and 10% QoQ with Waveserver and RLS up 80% YoY and backlog that grew by $2 billion to reach about $7 billion total.
With 800G pluggables ramping, new platforms like RLS Hyper-Rail and Nubius products (Vesta Optical Engine and Nitro redriver) will help to expand Ciena’s footprint. Notably, Ciena benefits from two major customer pools: hyperscalers building and linking more AI data centers which drives demand for DCI/metro/long-haul optical networking, but also telecom carriers and service providers who are upgrading their networks in anticipation of increased AI traffic across the network.
Below, we cover Ciena’s product positioning, its most recent earnings report and a few key catalysts to keep an eye on as we approach an inflection driven by the inference market.
Product Overview:
Ciena’s foundational business is to address connectivity needs in the wide area network (WAN), spanning long-haul, metro and data center interconnect (DCI). Ciena offers the optical backbone that connects AI data centers and regions and is poised to benefit as AI-driven traffic will lead to higher-capacity metro and long-haul upgrades.
Below, we break down the main products that Ciena offers currently, such as RLS and Waveserver, and products that Ciena plans to expand into, such as Vesta higher-density optical engine and Nitro linear redriver to extend reach in active copper cabling.
Optical Networking & DCI
Ciena offers a range of optical networking solutions targeting scale across, campus and metro DCI (10-20km and 20-100km) to backbone and submarine (10,000+ km reach) optical systems.
Ciena’s WaveLogic sends information over fiber using fewer lanes, which lowers power use and cost. Ciena uses WaveLogic inside its systems and offers compact pluggable modules that make it easier to add capacity without rebuilding a networking. Ciena’s Waveserver is the platform that connects data centers at scale by offering a packaged solution that can be deployed to expand bandwidth between sites quickly. The newer versions of Wavelogic detailed below allow Ciena to push higher speeds over the same fiber, which can reduce the number of components needed for a quicker and more simplified upgrade.
- Ciena’s WaveLogic 5 Extreme supports 200G to 800G line rates to enable 400GbE transport across any distance, including ultra-long haul and subsea, while its WaveLogic 5 Nano 100G to 400G ZR/ZR+ pluggable coherent optics are optimized for DCI applications with low power consumption of 15W with reach up to 140km. WaveLogic pluggables also seamlessly integrate into its Waveserver stackable interconnect platforms, scaling up to 12.8Tb/s per 2RU unit for cost-effective DCI solutions.
- Ciena’s WaveLogic 6 Extreme boosts speeds to an industry-leading 1.6Tb/s per wavelength, extending 800GbE transmission across the longest distances. Ciena says that WL6e delivers twice the capacity per wavelength in its existing 6500 and Waveserver platforms, helping reducing transceiver counts and lowering cost and complexity of systems. It also delivers double the capacity under the same power and space envelope versus WL5e.
- WaveLogic 6 Nano offers fit-for-purpose 400-800G ZR/LR/ZR+ pluggables and 1.6T coherent-lite pluggable transceivers to meet high-bandwidth AI data center applications. Ciena says that WL6n combines it vertically integrated DSP, electro-optics, and high-speed packaging to support high-performance data center fabric, or 2km, and data center campus, up to 20km, applications. 800ZR pluggables were implied to be ramping later in the year, while Ciena is also developing future 1600ZR/1600ZR+ solutions built on 2nm silicon.
Reconfigurable Line Systems (RLS)
RLS offers the infrastructure that routes wavelengths over fiber for metro and long-haul networks. COLORZ pluggables are part of the optical stack and are the endpoints that generate and receive the optical signal for DCI/metro links.
RLS plays an important role in ‘scale-across’ applications, the third pillar of scaling AI infrastructure. We have detailed the first two pillars, scale up and scale out, in detail, yet the challenge is that both cannot extend infinitely, which is where scale across fits in.
While scale across is much less discussed, it refers to linking together multiple geographically distributed AI data centers to act as one cohesive compute facility, theoretically facilitating a path to >1GW-scale clusters as it bypasses site/land and power constraints. This can either be in close proximity such as OpenAI’s Stargate cluster in Abilene spanning multiple buildings, Amazon’s Project Rainier or Microsoft’s Fairwater data centers linking together via ‘AI WAN’ (wide area network). Coherent ZR/ZR+ modules excel in scale across as they maintain the signal integrity and reliability across long distances at the highest data rates.
According to the management team, Ciena’s upcoming RLS hyper-rail solution is expected to be in high demand: “We are addressing this demand for scale across solutions with our RLS platform, the de facto industry line system standard for cloud providers as well as our 800ZR pluggable optics. To underscore this, we realized a second consecutive record quarter for RLS shipments and revenue. We expect to expand our role in scale across applications with the introduction of our new RLS hyper-rail solution. Hyper-rail delivers an order of magnitude increase in fiber density within existing rack footprints, helping customers scale traffic while reducing and, in some cases, avoiding costs and complexity associated with adding substantial numbers of amplifier huts.”
- Ciena offers reconfigurable line systems (RLS) in its 6500 RLS family, which addresses the highest-capacity bandwidth requirements in metro, long-haul and DCI applications. RLS can support 60Tb/s capacity on a single fiber pair, offering flexible configuration options while doubling fiber capacity without impacting existing C-band traffic. Ciena also says that its 6500 RLS can reduce physical footprint by as much as 70% versus traditional chassis-based systems from its modular form factor.
- Ciena is expanding its RLS portfolio with hyper-rail photonics, which feature new amplifier configurations to deliver 32x density of current solutions, scaling to 128 fiber pairs in a single rack. This is achieved by scaling from one rail per module to four, reducing power consumption by up to 75% and space requirements by up to 85% while integrating into existing rack footprints. Ciena explained that the RLS Hyper-Rail was co-developed with its hyperscaler customers specifically for multi-region, large scale AI connectivity, and will begin standardization at the end of 2026 and ramp in 2027. Ciena expects to be first to market in hyper-rail, allowing them to extend current RLS momentum into 2027 driven by share gains.
RLS is an important cornerstone for Ciena’s Optical Networking portfolio, with management explaining that FQ1 marked a “second consecutive record quarter for RLS shipments and revenue”, with growth of over 80% YoY. Ciena is seeing robust momentum for scale across stemming from its RLS solutions and ZR/ZR+ modules this year, with management explaining that they “are already experiencing extraordinary demand with 3 hyperscalers choosing to use our optical solutions for their training applications across distance.” All three hyperscalers were said to be “significantly ramping including additional orders for multiple additional clusters from the first hyperscaler we announced in Q3 2025.”
Scale Up, Scale Out and CPO
Ciena’s $270 million acquisition of Nubis in September 2025 expanded its presence inside the data center, as the aforementioned products primarily offer networking across the data center. With this new acquisition, Ciena is moving into scale-up and scale-out networking and co-packaged optics (CPO).
As a brief recap, CPO places optical transceivers directly on the chip package, rather than using separate optical modules, resulting in faster data transmission, reduced latency and higher bandwidth. This may be the best of both worlds: the performance of optical yet with reduced power consumption for increasingly power-hungry AI racks.
Ciena recently unveiled its Vesta 200 6.4T CPX, which it says is the industry's highest-density and lowest-power pluggable CPO solution. Ciena says that the retimer-free linear-drive operation saves up to 70% power versus other retimed options. According to management, samples of the Vesta 200 6.4T optical engine will be available in Q2 2026.
For scale-up inside the rack, Ciena is advancing Nubis’ Nitro Linear Redriver tech, which extends the distance that signals can be transmitted over copper cables and also reduce power by up to 80% versus AECs. Ciena will also sample the redriver in calendar Q2. As stated on the call, this is especially important for XPUs (such as from Broadcom): “For scale-up opportunities inside the rack, where XPUs are getting faster and driving heat and power concerns, we are advancing the Nitro Linear Redriver technology also from our Nubis acquisition.”
Data Center Out-of-Band Management
Out-of-band management is critical yet underdiscussed, as it provides a separate, independent network to control and recover data center infrastructure – for example, it allows hyperscalers to have visibility over servers and other components, and provide a pathway remotely recover systems without physical intervention. However, traditional out-of-band management faces increasing challenges as AI clusters scale up and out. This is because the maximization of GPU density in racks leaves minimal space for OOB connectivity, such as for switches, routers and console servers. It also is copper-heavy (and power hungry) by relying on extensive Ethernet cabling.
Ciena designed its DCOM solution with Meta to meet hyperscaler configuration requirements, noting that its DCOM solution, leveraging its routers, switches and its passive optical network (PON) ecosystem to reduce rack space by up to 99%, reduce power, and streamline remote access. Ciena says it is continuing to work with Meta on DCOM and had expanded last quarter, with two other hyperscalers in discussion. Management believes that DCOM will be a significant opportunity in the data center and a defensible space for them due to its speed, vertical integration and software.
Managed-Over-Fiber Networks (MOFNs)
Advanced networks called managed-over-fiber-network (MOFNs) are projects that connect multiple data centers in a metro area and upgrade capacity and resiliency on existing metro networks. This drives demand for Ciena’s optical transport and DCI solutions, especially across Waveserver, coherent optics and RLS amplifier and routing gear.
MOFNs are starting to show up as a growth driver because AI is creating significant traffic that has to be distributed between data centers. The customer base includes hyperscalers, neoclouds and service providers with 10% to 15% coming from telecom.
Ciena is seeing strong momentum in MOFN, noting that its orders in India were up 40% YoY, specifically for these solutions. According to management, there were three greater than 10% customers including two global cloud providers and one Tier 1 North America service provider with strong MOFN activity and “order intake has been incredibly strong over the past 90 days, leading to a new record by a significant margin.”
There was an interesting quote from management about MOFN and the neoclouds, as Ciena hinted that this is a preferred method of connectivity from its speed to market and less capex requirements from a lack of maintenance on the neoclouds’ part:
“We're seeing obviously an emerging ramp here around a bunch of the loosely called sort of neo-scalers, which encompasses a fair range of different players. It's, I would say, largely right now MOFN orientated, given the capital expenditures, time to market for them, et cetera. But what is clear from it all is that the network is now a real priority for them. And I think that plays through to the hyperscalers, too. There's been such a maniacal focus and continues to be, obviously, on things like power, GPU accessibility, et cetera, et cetera.
Now it's really about the network. The traffic is beginning to come out of the network, both for inference and for training. And the neo-scalers are obviously seeing that, too. So they're leaning in on the network. Now we're also beginning to see some of them wish to have control of some of that network as well and do their own builds. We're cautious about that approachment given the financial structure of some of those neo-scalers, not all of them.”
Backlog Rises 40% QoQ to $7 Billion, Orders Fulfilled in FY27
Ciena revealed strong backlog growth in fiscal Q1 and robust order activity tied to strong demand from hyperscaler customers. The backlog growth sparked multiple important discussions around conversion and pricing power, suggesting Ciena has strong visibility into next year with pricing emerging later this year as a growth lever.
Backlog rose 40% QoQ to $7 billion, with management noting that Q1 demand was ‘unprecedented’ with a very strong order intake. Roughly 80% of the backlog is for products and software, or ~$5.6 billion, up from $3.8 billion last quarter. Management would not put a concrete number on RPO, but said that it would be roughly 60% of the orders Ciena took in during Q1.
Ciena expects its backlog to continue to grow throughout the year yet noted that “nearly all” of the new orders it is currently receiving will be fulfilled in fiscal 2027, suggesting that supply remains extremely tight relative to demand with this providing strong visibility for next year’s growth.
CEO Gary Smith provided some color on the demand drivers and strength of demand, explaining that Ciena is “seeing growth in cloud, general cloud, you're seeing inference, you're seeing this new market of training now emerge. As I said in my comments, we've now got 3 hyperscalers deploying us for training, and we're at the very early stages of that.
So you put all of that together, and that yields the incredible demand that we saw in Q1. And as Marc said, despite the fact that we're ramping our capacity for delivery as seen in our results, demand is going to continue, we believe, to outstrip our ability to supply. And that's going to continue for — we believe, this year. And so we're going to end up with a larger backlog than we have right now as we turn the year despite the fact that we're ramping our capacity strongly throughout the year and obviously through '27 and '28.”
Smith also later clarified that it was purely demand that was driving this order growth and backlog increase, explaining that hyperscalers are ramping significantly in optical technologies both across clusters and within racks.
Pluggables to Triple to >$500M
Also intertwined with the scale across momentum is Ciena’s projections for hypergrowth to continue within its ZR/ZR+ pluggables business, where it is expecting its pluggable revenue to triple after doubling last year.
For context, Ciena stated in Q4 that pluggables had reached more than $168 million in FY25, so management’s guidance implies a ramp to >$500 million this year. This would represent a ramp from ~5% of Optical Networking revenue to likely low-double digit share in FY26 for pluggables, making them a key contributor to the segment and overall topline growth.
Management offered some commentary on pluggables and the drivers behind this growth, pointing to 800G ramping through FY27 and their expectation to lead the market with the new data rate:
Amit Daryanani, Evercore
“How do you see the pluggables market, especially with 800G ramping up through fiscal '26 and '27? And if you just maybe compare and contrast a bit about your position in 400 versus 800, that will be helpful as you go into the next cycle.
Scott McFeely, Executive Advisor
So we've seen pluggable revenue increase sort of period-over-period, and we've talked in the past about our interconnect business and when we went from 2024 to '25, that doubling. That's sort of in the rearview mirror. And then we talked about it as a major portion of our inside and around the data center with our aspirations to triple that this year, and we're well on track for that.
So we do see significant growth from a competitive perspective, as we've talked about in the past, through choices that we made to focus early introduction of the technology in the last generation more on our systems business and our pluggable business because that was the bigger opportunity. We weren't necessarily first movers in that market. So that probably cost us some share and it probably cost us actually, frankly, some margin dollars. That's not the case in the 800G. We're first to market there and 800G is moving quite along.”
800G is expected to ramp through the first part of 2026 and persist through 2027, and while the tripling of revenue is certainly welcomed, the upcoming cycle is expected to see strengthening margin tailwinds through the course of the year. Ciena explained last quarter that they are expecting to lower 800G unit costs over time, and as the ramp progresses through Q2 to Q4, they expect significantly lower costs versus the start of 2026. This suggests that 800G margin headwinds in the initial early ramp will quickly pass through and potentially shift to margin tailwinds by year-end on a much larger revenue base.
The primary challenge with pluggables was touched upon by management, in that the market is competitive, any first-mover advantages may be fleeting and pricing power is not a given. For example, Marvell recently unveiled its 1.6T ZR/ZR+ module, the first to come to market, with the new product expected to be initially available in the second half of the year, meaning Ciena’s lead in 800G may be short lived.
Not Aggressive on Pricing, but Tailwinds Emerging in 2H
Given the demand environment and supply tightness, analysts were curious about pricing power, noting that other component suppliers are being much more aggressive in raising prices and repricing their backlogs higher, and if Ciena would do the same.
Ciena has already been upfront about demand outstripping supply for at least the next several quarters and how supply constraints have impacted revenue growth, meaning a more aggressive stance on pricing could drive revenue growth at a much faster pace.
However, management downplayed the need or desire to reprice the backlog and be aggressive with pricing, explaining that they are already seeing market share gains and tangible impacts to growth and margins. This is likely because Ciena has already raised prices and expecting these to begin landing in 2H: “As we disclosed in Q4, right, the pricing increases that we talked about were really on the new orders. And because we had such a big backlog at the time, most of that was going to be seen in the second half. So you should expect those price increases to show up in Q3 and Q4.”
Management was also upfront about why they are opting to not be as aggressive as other suppliers when it comes to pricing, rather using it as a lever to get better contractual terms, better cash conversion and longer-term purchasing commitments to reduce the risk associated with converting its larger backlog.
George Notter, Wolfe ResearchGeorge Notter, Wolfe Research
“Obviously, you're raising pricing. I know it's going to come through later in the year as you eat down the backlog. But just stepping back and thinking about the space, you've got higher memory costs, you've got component suppliers that are being really aggressive on price. They're repricing their own backlogs. It just seems like it's an environment where you guys could be more aggressive on price and even perhaps reprice your own backlog. So I'm just curious like why not be more aggressive here given the supply-demand dynamics and what's going on in the supply chain?
Gary Smith, Ciena CEOGary Smith, Ciena CEO
We've talked a lot about the good things that we're doing to manage our margins and the rest of it, including the value rebalancing. But it is a balance to it all. And that's what we're trying to strike as we go through this. I mean you're seeing it translate into improved financial performance in all dimensions, market share gains, revenue, gross margin improvement and operating leverage. We're seeing that. And it's a confluence of things….
Marc Graff, Ciena CFOMarc Graff, Ciena CFO
No, I think Gary said it well. Pricing is a lever, George, but we're also looking at can we improve cash conversion? Can we get better terms and conditions? Can we get longer-term purchasing commits with maybe some more noncancelable, less risky terms as we satisfy this quite large backlog.”
Ciena is already showing signs of healthier payment activity within its days sales outstanding (DSO), which declined to 72 days in Q1, down from 77 days in Q4 and 90 days in the prior year quarter. Additionally, inventory turns reached 3.2X in Q1, up from 3.1X in Q4 and 2.3X in the prior year quarter, suggesting that demand is strengthening and payment terms are improving. Aiming for longer-term contracts and less risky terms would provide a higher degree of visibility into revenue through 2027 and will prevent Ciena from falling back into an inventory overhang like it had faced in early 2024.
Financials
Revenue Accelerates to 33.1% YoY in Q1
Ciena reported fiscal Q1 revenue of $1.43 billion, representing 33.1% YoY growth, while sequential growth came in at 5.6% QoQ. Revenue also beat consensus estimates by 2.1%, reflecting stronger-than-expected demand across optical networking and cloud connectivity deployments.
The strong YoY growth marks a notable improvement compared to the muted growth environment seen through much of FY24 and early FY25 as telecom customers worked through inventory digestion and moderated capital spending. The current acceleration suggests spending patterns across service providers and cloud operators are normalizing, particularly as network upgrades tied to AI infrastructure and high-capacity data center interconnect (DCI) deployments expand.
Looking ahead, Ciena guided for Q2 revenue of approximately $1.50 billion, which would represent 33.5% YoY growth and a modest 4.9% QoQ growth.
For the full year, Ciena guided for fiscal 2026 revenue of $5.9 to $6.3 billion, raising its growth forecast from 24% YoY to 28% YoY at midpoint. While the raise is certainly welcomed and indicative of the strengthening demand Ciena is seeing in RLS and pluggables, it indicates a rather soft 2H, after 40% and 34% growth in 1H. This suggests that the order momentum and backlog building are not translating over to 2H growth as of yet, but more so for 2027.
Margins Expanded, Ahead of Guidance
Profitability improved across all levels during the quarter, with margins expanding sequentially and outperforming management’s guidance in several areas.
GAAP gross margin came in at 43.8%, generating $625.5 million in gross profit. Gross margins benefited from improved product mix and stronger volumes across higher-capacity optical platforms.
On an adjusted basis, margins were slightly stronger, with adjusted gross margin of 44.7% on adjusted gross profit of $638.2 million. This result exceeded management’s midpoint guidance of 43.5%, suggesting better pricing discipline and favorable mix within Ciena’s optical portfolio. The company’s WaveLogic coherent optical platforms typically command higher margins, particularly as customers transition toward higher-capacity wavelengths such as 800G and beyond. Looking ahead, Ciena expects that its upcoming products such as RLS hyper-rail and more focused cost optimizations will help deliver improvement in gross margins. On the call, management explained that ” moving forward, you'll see even more aggressive cost reductions. And then the price increases that we talked about at the end of last year, those really haven't started to fully kick in until the second half of the year. So I think that creates additional tailwinds for us. So all in all, again, I think we're making really good progress towards that 45% way point, and you should see that throughout the year.”
Operating leverage became more visible in Q2 as operating margins improved meaningfully in the quarter, reflecting the benefits of stronger revenue growth flowing through the cost structure. GAAP operating margin was 13.3%, improving 5.8 points YoY and 12.5 points QoQ, and marking Ciena’s first return to above a double-digit margin since the end of 2021.
Adjusted operating margin was 17.9%, coming in well ahead of management’s 16% guidance. Because Ciena operates with a large fixed-cost R&D base tied to its optical platform development, revenue expansions typically translate into disproportionately stronger operating profit growth once demand improves. Operating leverage will remain a key driver of earnings growth if revenue continues expanding at a high double-digit pace over the coming quarters.
This improving operating profitability flowed through to net income as well, with GAAP net margin of 10.5%, up 6.3 points YoY and 9.1 points QoQ. Adjusted net margin was 13.8%, with the difference reflecting stock-based compensation and other non-cash adjustments.
EPS
Ciena reported a strong 15.6% beat to adjusted EPS estimates in Q1, earning $1.35 in the quarter, up 110.9% YoY. GAAP EPS was thinner at $1.03, up 232.3% YoY on a softer comp.
Looking ahead, Ciena is expected to see EPS growth accelerate in Q2 on a softer YoY comp, with growth decelerating through the back half of the year but remaining strong. Adjusted EPS is projected to rise 247% to $1.46 in Q2 before decelerating to 134.6% YoY to $1.57 in Q3. Growth is expected to reach 94.1% by Q4 to $1.77.
For the full year, Ciena is currently projected to report 132.4% growth to $6.14, before decelerating to 34% growth in FY27 to $8.22.
Cash Flow Generation Remains Healthy
Cash flow generation remained solid in the quarter and improved alongside stronger profitability. Ciena’s balance sheet remains solid with a manageable leverage profile and ample liquidity.
Operating cash flow was $227.7 million for a 16.0% margin, improving from a 9.7% margin a year ago. Free cash flow was also positive at $153.8 million, representing a 10.8% margin, up from 7.2% a year ago.
These cash flow margins remain healthy for a hardware-driven networking company, particularly one with significant R&D investments in optical technologies and silicon photonics. Over time, improving operating leverage and scale could push free cash flow margins higher, particularly if higher-capacity optical products continue gaining share within the product mix.
Cash and short-term investments totaled $1.30 billion, while total debt was $1.54 billion.
Notably, capex was $74 million in Q1, which is 2X to 3X more than the company’s average capex over the past three years. The trend toward higher capex is likely to continue given a mix of strong visibility from customers and the need to secure critical components ahead of demand. Here is what was stated on the earnings call: “Second, we are deeply engaged with component vendors, which is where more of the industry challenges exist to secure and expand supply, including through responsible long-term purchase commitments. As shown by our Q1 results, we are navigating the supply environment well and are investing to expand capacity. However, we expect demand will continue to outstrip supply at least for the next several quarters.”
Conclusion
Ciena’s quarter reinforced the company is a direct beneficiary of AI-driven connectivity spend – not just inside the data center, but across metro and long-haul networks that connect AI clusters and regions. Ciena was also recently included in the S&P 500 – and for good reason as the $50B+ market cap company is set to report over $6 billion this year in revenue with a bottom-line that is doubling.
Record revenue and expanding profitability, plus a backlog that pushes into fiscal 2027 all point to demand that is both strong and increasingly visible. The company’s 800G pluggables are ramping, and new platforms like RLS hyper-rail and Nubis products are set to expand Ciena’s footprint ahead of more long-haul/metro demand from distributed inference and multi-site training.
Although our portfolio is loaded with market-leading AI networking winners, with some up as much as 100% YTD, Ciena holds its own by offering a differentiated way of participating in the next phase of AI infrastructure, where the focus shifts to scaling the bandwidth that connects data centers and regions.
Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.
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