JPMorgan: Light is good, but too expensive; downgrades Corning's rating.

The optical networking sector is the most aggressive hardware sub-sector in valuation expansion during the current round of AI infrastructure investment, but JPMorgan believes that the current high premium has already priced in overly optimistic earnings scenarios ahead of time, with the logic driven by fundamentals now giving way to valuation constraints, necessitating more cautious stock selection.

According to Chase the Wind Trading Desk, JPMorgan downgraded Corning’s rating from Overweight to Neutral on April 16, with a target price raised from $115 to $175 (based on expected EPS of $5.20 in 2028, discounted at 35x P/E). Corning's share price is around $168, which means the new target price only implies about 4% upside. The analysts believe that the current price has already priced in the "blue-sky scenario" for a substantial jump in optical fiber prices and large-scale AI deployment, while about 60% of Corning's non-optics business, execution risk in capacity expansion, and uncertainties in the pace of large-scale adoption of optical networking have not been fully reflected in the valuation.

JPMorgan data shows that optical networking stocks’ NTM P/E has risen by 50% since the start of the year, topping all covered sub-sectors. The overall valuation of AI-related hardware suppliers is at an 83% premium compared to historical averages, with the optical networking sector being particularly pronounced—current valuation levels require investors to look ahead to 2028 to justify substantial upside from a fundamentals perspective, which contrasts with networks/switches or some IT hardware firms, where upside logic can be supported with only 2027 earnings forecasts.

On the fundamentals side, JPMorgan is not pessimistic about demand prospects for Corning's optical fiber business and has simultaneously raised its revenue and earnings forecasts. However, the analysts believe this improvement has already been fully or overly reflected in the current valuation, with portfolio logic shifting from "fundamentals could catch up" to "valuation has outpaced fundamentals."

Optical Networking Sector: High Valuation Premium, 2028 Visibility Is Key Threshold

Optical networking is a core beneficiary of the AI infrastructure construction cycle, and it has also seen the most aggressive valuation expansion among hardware sub-sectors since the start of the year. JPMorgan statistics show optical networking stocks’ NTM P/E has risen by 50%, far ahead of Test & Measurement (+44%), HDD, and other AI-related sectors, while EMS, networks/switches, IT hardware, etc. have seen flat or contracting valuation premiums since the start of the year.

However, this rapid valuation expansion has pushed the optical networking sector into an awkward position: investors must be willing to anchor earnings expectations in 2028 to fully justify the current stock price. For most optical networking firms, the true earnings inflection point from large-scale AI deployment is not expected until 2028. In contrast, EMS, networks/switches, and some IT hardware companies can support their share price upside logic with only 2027 earnings forecasts, without relying on more distant assumptions.

In this context, JPMorgan adopts a more selective allocation strategy for covered optical networking names overall. The bank maintains Overweight ratings for Ciena, Coherent, and Lumentum, citing clear visibility regarding their 2028 earnings inflection points and relatively distinct profit growth paths stemming from scale-across and scale-up opportunities. For firms with valuations that have significantly outpaced, and 2028 earnings visibility that still needs improvement, JPMorgan tends toward downgrades or caution.

Corning: Favorable Fiber Demand Outlook, but Valuation Outpaces Fundamentals

JPMorgan’s downgrade of Corning’s rating is due to valuation concerns, not deterioration in fundamentals. The analysts are positive on the outlook for fiber business demand, and have correspondingly raised their revenue and earnings forecasts for the company.

In the updated forecasts, JPMorgan raised Corning’s total revenue estimate for 2026 to $19.03 billion (previously $18.6 billion), for 2027 to $21.65 billion (previously $20.9 billion), and newly set the 2028 estimate at $25.12 billion—roughly $1.4 billion annual increment, even exceeding Corning’s own Springboard target of about $1.1 billion incremental.

The fiber business revenue’s compound annual growth rate during the forecast period is about 30%, with AI/data center interconnect-related revenue CAGR exceeding 50%, outpacing data center capex and XPU shipment growth. EPS forecasts were also raised: 2026 at $3.20 (previously $3.10), 2027 at $4.15 (previously $3.90), and a new forecast for 2028 at $5.20, reflecting about 30% CAGR.

Even so, JPMorgan believes the current share price reflects scenarios more optimistic than these forecasts. Corning’s NTM P/E is currently over 50x, with expected P/E for 2027 over 40x; the analysts judge that the buy side’s expectations have already priced in significant price hikes for fiber and connectors, and the blue-sky scenario for AI scale-up, leaving little margin for error regarding capacity build-out linearity, pace of large-scale optical networking adoption, and the still roughly 60% contribution to company-wide profits from non-optics businesses.

Optical Fiber Pricing: Buy Side Expectations at Risk of Being Overestimated

JPMorgan questions the core assumptions of the buy side’s argument. From discussions between analysts and investors, the optimistic expectations for Corning’s fiber business include assumptions that fiber prices will rise sharply (by over 30%), and expect similar magnitude hikes to eventually push Corning’s fiber business margins above those for current optical equipment in a few years.

JPMorgan sees these expectations at risk of overestimation. Industry spot fiber prices have indeed risen since the start of the year, driven by concerns over supply constraints following Meta and Corning’s capacity lock-in agreement. However, most of Corning’s existing capacity is already pre-contracted to a few large customers, so Corning has relatively limited leverage in pricing negotiations. JPMorgan judges that spot market fiber price increases will benefit only a small portion of customers’ purchases, making the net positive impact on overall company financials rather mild—much lower than what the buy side currently implies.

Valuation Framework: 35x 2028 Earnings Discounted, Limited Upside in Target Price

JPMorgan discounts Corning’s expected 2028 EPS of $5.20 at a target 35x P/E, yielding a target price of $175 in December 2026, just about 4% above the current price of $168. The 35x premium valuation reflects recognition of Corning’s unique competitive position—as a vertically integrated, large-scale U.S.-based supplier of optical fiber/cables and connectors, it has scarcity value in the wave of AI infrastructure build-out.

But JPMorgan also notes that if a sum-of-the-parts valuation is used, combining optical assets with non-optical assets will be discounted by the latter’s slow growth, producing an overall lower multiple than pure optical networking peers. The profit growth in optical business is real—JPMorgan expects optical business will contribute about 60% of total company profits by 2028—but the amplification effect on overall revenue and profits will be less than the buy side’s assumed higher elasticity scenario. The analysts believe that at current valuation levels, for Corning's share price to materially rise, clearer visibility into 2028 earnings is needed—a condition that’s not yet fully met.

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The above highlights are from Chase the Wind Trading Desk.

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