Morgan Stanley analyst Meta Marshall upgraded Ciena Corp (NYSE:CIEN) from Equal-Weight to Overweight and raised the price target from $53 to $55.

In CIEN's fiscal second-quarter print, Marshall was slightly more cautious given the challenging fiscal 2024 setup, where he saw a risk to Street estimates that implied a hockey-stick inflection in the year's second half.

However, post-cut to full-year estimates, Marshall noted that the fiscal 2024 model is de-risked at this point, and he re-rated to reflect upside potential in fiscal 2025 as inventory levels normalize.

Cloud demand outperforms on the back of share gains / WaveLogic 6 ramp.

Marshall expected service provider recovery to be gradual, with inventory levels normalized exiting fiscal 2024, but does see some upside potential from routing exposure if share gains keep pace.

Cloud should be an outsized growth driver for CIEN across fiscal 2025, driven by continued share gains and the WaveLogic 6 ramp. This will inform his view of the potential upside to estimates next year.

Marshall noted room for estimate revisions in fiscal 2025.

Broadly, Marshall noted that the service provider demand environment has bottomed and that buyers will be buying ahead of the gradual recovery.

The analyst also leaned positively on CIEN's exposure to the cloud, both near-term and longer-term, particularly given its strong positioning ahead of the inter-data entry AI opportunity.

Marshall is encouraged by the AI opportunity for DCI, catalyzed by power limitations within data centers forcing traffic outward.

However, this opportunity remains over the coming years rather than in the near term.

The analyst believes that the chance for CIEN to gain a share in metro pluggables and maintain a share in DCI systems should present a growth opportunity in the coming years.

Price Action: CIEN shares were trading higher by 4.03% at $47.77 at the last check on Wednesday.