Morgan Stanley predicts that several networking and telecom equipment companies will outperform in 2026 due to continued AI infrastructure investments. The bank highlights Cisco Systems (CSCO.US) and Arista Networks (ANET.US) as key beneficiaries, citing Ethernet technology's expanding market share, attractive valuations among AI-related stocks, and earnings growth not reliant on price hikes.

Analysts Meta Marshall and Mary Lenox noted in a 2026 outlook report, "For Cisco, sovereign and optical opportunities could drive upside, while Arista's overly pessimistic market sentiment may reverse post-Q1 earnings and initial deployment clarity." Morgan Stanley maintains "Overweight" ratings on both stocks, raising Cisco's target price from $82 to $91 but trimming Arista's from $171 to $159.

Cisco's AI revenue is projected to reach $3 billion by FY2026, growing from ~2% to nearly 5% of total revenue, fueled by strong demand for data center optical components. Meanwhile, Morgan Stanley upgraded Motorola Solutions (MSI) to "Overweight" (target cut to $436 from $471), citing an oversold valuation gap versus the S&P 500 after a 20% YTD drop tied to government shutdown concerns.

The bank also expects Corning (GLW.US), Ciena (CIEN.US), Lumentum (LITE.US), and Coherent (COHR.US) to outperform, driven by laser/optical component investments like 800ZR and EML lasers. However, analysts caution on sustained pricing amid capacity expansions, though upward AI capex revisions could extend optical firms' near-term momentum into 2026. Target prices were raised for Corning ($98 from $82), Ciena ($213 from $195), Lumentum ($304 from $190), and Coherent ($180 from $150).