Shares of Ciena dived Thursday even as the networking company reported better-than-expected quarterly earnings and raised fiscal-year revenue guidance.
Artificial intelligence continues to drive demand for optical networks that transmit data between and beyond data centers, but investors are also getting tougher on artificial-intelligence hardware providers.
Ciena stock slid 11% to $314.95 and was the worst-performing S&P 500 component in Thursday's session after initially rising before the opening bell. The drop marked the second time in a row that Ciena shares have plummeted after a largely positive quarterly report.
Ciena CEO Gary Smith told Barron's he expects the company to perform well in the long run based on fundamentals, but acknowledged it may take time for investors to separate winners from losers in the AI trade.
"I just think everybody thinks about AI infrastructure as an amorphous blob," Smith says. "I think you've got a lot of fast money playing with it. You've got algorithmic trading. You've got all of those dynamics coming into play."
Shares had advanced 51% this year as of Wednesday on the back of strong demand from AI and data centers for cabling and communications systems. The stock, however, had declined 43% since June 2.
Ciena posted adjusted earnings of $2.11 a share in the fiscal third quarter ended Aug. 1, up from 67 cents a year ago and above Wall Street's expectation of $1.73. Revenue grew 37% to $1.67 billion, beating the analyst consensus call for $1.64 billion, according to FactSet.
Heading into the report, Wall Street was particularly interested in guidance as a gauge of how robust data-center demand remains.
The company raised its fiscal-year revenue guidance to $6.42 billion at the midpoint, up from $6.3 billion and above Wall Street's forecast of $6.34 billion. Ciena also said it expects fiscal fourth-quarter revenue of $1.75 billion at the midpoint, which is also above the consensus forecast of $1.7 billion.
Tariffs could be one worry for investors, however, as Ciena expands its supply capacity to meet a growing revenue backlog.
In the third quarter, Ciena got a tariff refund that expanded margins by about 0.7 percentage point. The company doesn't expect that margin boost to be continuous, Smith said on a conference call. Ciena is also monitoring new tariffs imposed by Canada-the latest move in the U.S.-Canada trade saga.
Along with Ciena stock, fellow networking stocks also traded lower. Corning declined 0.9%, Coherent fell 2.5%, Lumentum dropped 3.9%, and Cisco Systems was down 0.8%.