UBS's forward-looking AI computing power industry chain: full orders, supply is stuck, Arista (ANET.US) and other financial reports are surprising

The Zhitong Finance App learned that data center infrastructure investment has ushered in an acceleration window. UBS released a forward-looking report on Tuesday, analyzing the performance prospects of four network and optical communication companies, including Arista Networks (ANET.US), Tianhong Technology (CLS.US), XTR.US (EXTR.US), and Lumentum (LITE.US). The core highlight of the industry is that demand for products such as switches is strong, and most target revenue is expected to exceed institutional expectations, but supply chain bottlenecks have become a common problem limiting the achievement of performance across the industry.

UBS analyst David Vogt wrote in the report: “Over the past three months, global data center infrastructure investment has continued to accelerate, which is expected to drive a simultaneous rise in industry demand/orders and backlog orders. However, lengthening delivery cycles for core components such as network chips and CPUs, and key raw materials such as indium phosphide (InP) may inhibit revenue growth, as surveys show that companies cannot fully meet potential demand.”

The analyst added, “Our industry survey shows that demand for data center network switches has increased over the past few months, which supports strong quarterly results and future prospects for Arista and Tianhong Technology, despite the shortage of Broadcom network chips. As far as high-speed networks are concerned, demand for wired networks and WiFi services remains strong, and the company's revenue is expected to slightly exceed expectations. At the level of the optical communications industry chain, increased production of optical circuit switches (OCS) and strong demand for transceiver devices and components such as EML and pump lasers will bring good performance to Lumentum. However, the survey also showed that the bottlenecks in the optical communications supply chain have not been resolved, which may limit the conversion of orders into revenue.”

Vogt further analyzed that Arista benefits from establishing and deepening partnerships with large-scale cloud service providers and new cloud platforms, which will drive its revenue and profits to exceed expectations.

He added, “More importantly, we expect the company's revenue growth guidance for fiscal 2026 to be raised from 27.5% to 33% due to the steady increase in order volume over the past 9-12 months and the acceleration of product deferral revenue.”

For Tianhong Technology, the situation is slightly different, as recent channel surveys show that the supply chain disadvantages that previously plagued the company have been mitigated.

Vogt said, “Our quarterly follow-up survey shows that supply chain issues that dragged down server/tensor processor (TPU) revenue last quarter have been properly addressed; while demand for Ethernet switches from Meta and Amazon remains strong. As a result, our analysis shows that Tianhong Technology's revenue for this quarter may be 3% to 4% higher than expected, reaching about US$4.5 billion; the corresponding earnings per share (EPS) is expected to increase by about 5% from our forecast value of $2.29 to $2.40, which is also higher than the company's guidance range of US$2.14 to US$2.34.”

The market's “strong” demand for wired and wireless networking equipment for high-speed networks, Vogt believes this will drive the company's revenue to exceed expectations and approach the upper limit of the company's previous guidance of $335 million.

Vogt explained, “Potential revenue growth and increased gross margin due to pricing strategies should make earnings per share slightly higher than our previous forecast of $0.29, and the company's guidance range is $0.28-0.30. However, we have noticed that the current stock price has been priced ahead of schedule, and the performance has exceeded expectations and favorable upward guidelines. For the 2027 fiscal year, we expect the company to give revenue guidance of 1.37 billion to 1.4 billion US dollars, an increase of about 8% year over year based on the median range; our previous forecast was 1.37 billion US dollars, and the market agreed to be 1.388 billion US dollars, and investors' performance expectations may be slightly higher. ”

Vogt also said that Lumentum's optical circuit switch revenue is growing steadily, and demand for 200G EML (electrically absorption modulated lasers) continues to be hot, which is expected to drive its revenue to more than 1 billion US dollars.

Vogt wrote, “Although supply restrictions may cause Lumentum to ship less than potential demand, operating leverage will dilute unit costs and drive diluted earnings per share 3%-4% higher than our previous estimate of $3. For the quarter of September 26, we expect the company's revenue to be between US$1.15 billion and US$1.2 billion, slightly higher than our previous forecast of US$1,149 million, and a year-on-year increase of about 120% based on the median range. Despite some supply constraints, investors' expectations for results are still slightly higher.”