Morgan Stanley: Nokia vs. Ciena – Who Will Win in AI Data Center Optical Networking?

Morgan Stanley has compared two AI networking stocks—Nokia and Ciena—with the core variable being whether hyperscale cloud data center construction can continue to drive growth in optical networking equipment orders. Ciena is currently the market leader in optical networking, with approximately 68% of its revenue coming from optical networking; Nokia's optical networking business accounts for about 19% of revenue but is rising rapidly, with cloud customer revenue expected to increase from less than 10% currently to around 30% by 2030.

The report states that the rapid growth of east-west traffic in AI data centers is continuously driving upward revisions to optical networking equipment orders and revenue forecasts. However, the constraints faced by the two companies differ: Ciena is more affected by material supply and gross margin flexibility; Nokia's performance depends more on whether its optical and IP businesses can sustain high-speed growth.

Morgan Stanley published a research report titled 'Europe Face-off: Comparing Nokia and Ciena' on July 9, 2026. The report provides an in-depth comparison of the two AI networking equipment vendors—Nokia and Ciena—with the following key conclusions: Ciena is the leader in the optical networking market (rating: Neutral), but Nokia is catching up quickly and offers a more attractive valuation (rating: Overweight, designated as Top Pick).

The backdrop to this report's release is that, after a sector-wide correction in the optical communications industry, market focus has returned to whether hyperscale data center operators can maintain strong capital expenditures.

Core Comparison of the Two Companies

1. Ciena: Optical Networking Market Leader

Ciena holds a technological lead of approximately 18 to 24 months in the optical networking field, especially in high-performance optical components, which is why Morgan Stanley assigns it a Neutral rating.

Its main advantages include:

- Global market leadership in optical networking with high technical barriers. - Deep penetration into the AI data center interconnect (DCI) market. As of fiscal 2026, Ciena has secured $5.3 billion in hyperscale AI infrastructure orders and has raised its full-year AI order outlook to $9 billion, with AI infrastructure revenue forecast increased to $4 billion. - Managed Optical Fiber Network (MOFN) business now accounts for about 15% of service provider-related revenue.

2. Nokia: Rapidly Advancing Challenger

Nokia received an Overweight rating and was named a Top Pick.

Its main growth strategies include:

- Acquired optical networking equipment company Infinera for $2.3 billion in February 2025 to strengthen its AI data center optical networking positioning. - Morgan Stanley estimates Nokia's optical networking revenue will grow over 20% in 2026, primarily driven by demand from hyperscale data center operators. - Nokia has significantly raised its estimated compound annual growth rate (CAGR) for the AI and cloud market's total addressable market (TAM) from 16% to 27% for the period 2025 to 2028.

Positive Factors

1. AI Driving Explosive DCI Demand

Bandwidth demand for data center interconnect (DCI) due to AI workloads is experiencing exponential growth.

Industry experts estimate that DCI bandwidth demand will grow at least sixfold over the next five years, with approximately 43% of new data center facilities globally dedicated to AI workloads.

As a critical infrastructure for overcoming GPU utilization bottlenecks, optical networking has become a primary beneficiary of AI capital expenditures.

2. Sustained Heating of the Optical Communications Industry

The optical transmission market is projected to exceed $18 billion in 2026.

Ciena's optical networking business is growing at nearly 68%, while Nokia's optical networking business is growing at about 20%.

Morgan Stanley notes that year-to-date, networking equipment stocks have risen an average of 36%, with the four major optical communications companies averaging a 53% increase.

3. Nokia's Transformation and Valuation Logic

Morgan Stanley believes Nokia is gradually transforming from a traditional mobile communications equipment provider into an AI data center optical networking equipment supplier—a key reason for its revaluation in the market.

Nokia's AI and cloud business revenue in 2025 was only about €1.1 billion, far below its main competitors. However, Morgan Stanley views this not as a weakness but as growth potential.

Risk Factors

1. Nokia's Core Business Continues to Shrink

Nokia's flagship mobile networks division reported Q2 2025 revenue of €1.73 billion, down 13% year-on-year.

Morgan Stanley points out that this is not just due to cyclical factors, but also reflects a structural slowdown in global telecom capex following the peak of 5G deployment.

Whether AI networking business can grow fast enough to fill this gap remains the market's biggest question.

2. Intensifying Competitive Landscape

The AI data center optical networking market is currently dominated by Ciena, Coherent, and in-house optical solutions from NVIDIA and Broadcom.

As latecomers, Nokia and Infinera still face the challenge of successfully transitioning from 'telecom-grade' to 'data center-grade' solutions.

3. Valuation Already Reflects Market Expectations

Nokia's forward P/E is around 33x, suggesting the market may have already priced in expectations of successful AI transformation.

If AI business fails to grow as expected, valuation correction risk remains.

4. Uncertainty in Hyperscale Capital Expenditure

The report highlights that the biggest variable remains whether hyperscale data center operators can sustain high capital spending.

If AI infrastructure investment begins to slow, the entire optical networking equipment industry could face growth pressure.

Morgan Stanley concludes that in the high-growth race of AI data center optical networking, Ciena is already the market-recognized leader; Nokia, however, offers a better risk-reward profile due to its lower base, higher growth elasticity, and relatively attractive valuation.

Nonetheless, whether Nokia's AI growth story truly materializes depends on the success of Infinera's integration, whether AI business can offset core business decline, and whether hyperscale data center operators' capex can continue to grow.

For investors, this represents a choice between the 'certainty of the leader' and the 'high growth elasticity of the challenger'.