Extreme Networks (EXTR) is positioned for a "solid" quarter as industry conditions improve and concerns around memory shortages may be overstated, Oppenheimer said Wednesday in a note.

The brokerage said demand is inelastic given the mission-critical nature of networks and growing importance of on-premise and hybrid artificial intelligence deployments, which could also drive a WiFi 6E and WiFi 7 upgrade cycle.

Memory costs have risen to 10% to 20% of cost of goods sold amid supply shortages and high demand. Oppenheimer expects Extreme Networks to pass these increases onto customers, in line with industry practice, and said its higher estimates remain conservative, while noting the company has more than nine months of supply.

Management said growth is rebounding post-COVID as travel picks up and people return to offices and schools. Large venues and stadiums are restarting projects, and Europe is entering a growth phase as public and defense sectors seek to limit exposure to public clouds, according to the note.

Extreme Networks' platform model is unlocking operating leverage and free cash flow generation, with the stock trading at a discount to historical valuation levels, according to the note.

The company is scheduled to report fiscal Q3 results on April 29.

Oppenheimer maintained an outperform rating on Extreme Networks with a $25 price target.

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