Ciena's Next Earnings Report on September 3 Could Send the Stock Soaring. Here's Why.

Thursday is going to be an important day for Ciena (NYSE:CIEN) investors, as it's when their company unveils a fresh quarterly earnings report. Not for the first time, hopes are high for the tech hardware maker. It's one of the better-known equipment suppliers helping to feed the feverish build-out of artificial intelligence (AI) compute. As such, analysts are -- again -- predicting extremely robust growth.

Ciena has a recent history of not only hitting that mark but also beating the consensus estimates of those prognosticators. This, however, didn't help its stock rise after the previous earnings report. Here's what might get the shares to defy gravity this time around.

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Double- and triple-digit growth

Ciena is scheduled to publish its fiscal 2026 third-quarter results and host a conference call to discuss them before market open on Thursday. It'll be broadcasting to an investment community that continues to expect much from the company.

The consensus analyst revenue estimate for the quarter is $1.64 billion. That's a robust 34% above the same period of 2025, although it sits at nearly the midpoint of the company's guidance range of almost $1.58 billion to nearly $1.68 billion.

A higher bar for Ciena to clear will be net income not in accordance with generally accepted accounting principles (non-GAAP, or adjusted). This is expected to soar by 158% -- wow! -- to $1.73 per share. The company hasn't provided guidance for this metric.

Ciena is quite the grizzled veteran in the optical networking components niche. The current boom in its business is driven by products that enable extremely high-speed data transfers, which are crucial for resource-intensive AI capabilities.

That explains the rosy third-quarter projections from both analysts and company management. Yet the gap between revenue and adjusted profitability growth is striking.

This is based on recent history; Ciena has done an effective job of designing increasingly more cost-effective products. It's also enacted strategic price increases from time to time, which isn't a challenge in such a demand-heavy environment. Another factor at work is Ciena's shift toward more state-of-the-art, premium products with relatively high price tags.

The company's GAAP gross margins tell the tale. Over the past five quarters, they've risen steadily but surely, from 40.2% in the second frame of fiscal 2025 to 44% in the same period of 2026.

Fall from grace

I need to emphasize that after Ciena reported its latest earnings (for the fiscal second quarter) in early June, it was hit by an aggressive sell-off by investors. Its stock still hasn't come close to recovering from this.

That's usually not what happens when a company posts a beat-and-raise quarter marked by skyrocketing growth in core fundamentals.

To me, that sharply negative reaction was due to two factors. One was the extreme run-up in the company's shares, which had risen 165% year-to-date as of the day before the earnings release. At that point, it became clear to many that the company was a star pick-and-shovel play on the AI revolution. Investor expectations, then, were sky-high, to the point that only an absolute blowout of a quarter would have sustained that momentum.

Major factor No. 2 was the performance of Broadcom (NASDAQ:AVGO), a bellwether for AI adoption (as it's the top designer of custom AI chips favored by many prominent developers). Broadcom reported its own fiscal second-quarter figures a mere two days before Ciena, and the dynamic was similar. A sustained stock rally had left Broadcom richly priced, and despite record results, powerful growth, and meaty margins its stock tumbled. In retrospect, nothing short of a real stunner on the upside was likely to push it higher.

A more forgiving market?

So the good news for Ciena is that the pressure has eased since those peak share price days (and I mean that, as its equity hit a more than 25-year high before the offending second-quarter release). At this point, folks are looking for good reasons to believe in the stock again.

I think the company will deliver. After all, it notched earnings beats on lofty analyst estimates in all four of its trailing quarters. And it's not like demand for crucial AI components is fading at all; in fact, the opposite is true. I believe many investors will be looking for yet another raise in guidance, either of the quarterly or (preferably) the annual variety. This has become habitual, too, and the stock might sink if this doesn't occur.

I'm cautiously optimistic here. I think investors won't be as demanding of Ciena as they were in the run-up to the second-quarter print, and its shares will see a lift. However, the company will have to post yet another impressive performance; no matter how strong a business or how favorable its environment, that's never an easy accomplishment.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Ciena. The Motley Fool has a disclosure policy.