## 2 Stocks Capitalizing on the AI Boom: Ciena and NetApp Riding the Cloud Computing Wave
The artificial intelligence (AI) boom has been a driving force in 2024, propelling forward despite legacy technologies still finding their footing after the post-pandemic surge of 2021. The accelerated deployment of AI is breathing new life into these legacy technologies, including cloud computing, virtualization, networking, and hard disk drives (HDDs). Businesses are actively addressing the inventory backlog, creating a favorable environment for companies like Ciena and NetApp, which are reaping the rewards of AI-driven demand and seeing their cloud computing and legacy businesses experience renewed growth.
### Ciena: Cloud Providers Fueling the AI Infrastructure Buildout
Ciena Co. (CIEN), a legacy technology company, has earned recognition for its role in building the internet through its optical fiber and networking solutions. AI demands lightning-fast connectivity to manage massive data flows, making Ciena’s products indispensable for its deployment. Data centers are a key customer base for Ciena, relying on its optical transceivers to transmit data over long distances at the speed of light, literally using light signals to minimize latency. Data center interconnect (DCI) extends beyond the confines of a single data center, enabling data to seamlessly flow to AI platforms, connecting multiple data centers and cloud providers.
### Connecting the Cloud Giants and AI Platforms
Ciena’s clientele includes some of the largest cloud providers, like Alphabet Inc.’s Google Cloud, as they expand their networks to accommodate the exponential growth of AI data traffic. The burgeoning cloud computing sector has propelled cloud providers to contribute nearly 30% of Ciena’s total revenue, driven primarily by its DCI business. Enterprises are adopting a diversified approach to their infrastructure, spreading their operations across multiple clouds and providers, a trend that significantly benefits Ciena.
### Networking Platforms Gaining Traction
Ciena’s impressive fiscal third quarter 2024 earnings report has garnered the attention of investors and analysts alike. Its Networking Platforms segment revenues surged to 74.2% of total revenue, reaching $699.5 million. The company’s book-to-bill ratio exceeded one, signifying that demand outpaces its ability to fulfill orders. Cloud providers are the main drivers of this order influx as they aggressively build out their networks. This infrastructure buildout includes undersea cables, long-haul routes, and data center connectivity. Ciena anticipates fiscal fourth-quarter revenue between $1.06 billion and $1.4 billion, aligning with consensus estimates. The long-term compound annual growth rate (CAGR) is projected to be between 6% and 8%, with fiscal 2024 revenues estimated to reach around $4 billion.
### NetApp: Navigating the Hybrid Multicloud Landscape
NetApp Inc. (NTAP) specializes in providing hybrid cloud and data infrastructure software and hardware solutions. These solutions empower companies to securely access and manage their data across all environments, enabling a unified view through a single pane of glass. NetApp seamlessly integrates with all major cloud providers. It empowers companies to establish on-premise and private clouds for sensitive data and mission-critical applications, while utilizing public clouds for routine data and application management. From servers to all-flash data storage arrays, NetApp offers a comprehensive solution for digital transformation and cloud migration.
### AI Deployment Reinvigorates Cloud Growth
During its fiscal first quarter of 2025, NetApp reported record non-GAAP operating margins of 26% and a record first-quarter net income of $1.56. Its first-party and marketplace cloud storage services revenues saw a 40% year-over-year increase. Its Hybrid Cloud division generated $1.38 billion in revenue, an upward climb from $1.28 billion in the preceding year. The Public Cloud division contributed $159 million in revenue, exceeding the previous year’s $154 million. NetApp boasts a strong financial foundation with $3.02 billion in cash and cash equivalents.
### NetApp Securing More Contracts and Expanding its Reach
NetApp has secured over 50 AI and data lake modernization wins, including a major contract with one of the world’s largest oil and gas companies, for its AI and high-performance computing (HPC) workloads. Its all-flash storage has been chosen to handle 40,000 GPUs and CPU cores, powering 3D virtualization workloads and simulations. Another prominent financial services institution has opted for NetApp to consolidate petabytes of data into a single data lake for AI and analytics purposes. These workloads span a wide range of applications, including fraud detection, portfolio management, and credit scoring.
### Positive Outlook for NetApp
NetApp has issued positive guidance for its fiscal second quarter of 2025, anticipating an EPS of $1.73 to $1.83, exceeding the consensus estimate of $1.71. Revenue is projected to range between $1.565 and $1.715 billion, outperforming the consensus estimate of $1.63 billion. For the full fiscal year 2025, NetApp expects EPS to reach $7.00 to $7.20, surpassing the consensus estimate of $6.89. Full-year revenue is anticipated to fall between $6.48 billion and $6.68 billion, exceeding the consensus estimate of $6.55 billion.
