Goldman Sachs reiterates Buy on Prysmian: tight optical fiber supply and demand may persist through 2028

Overview

This is a Goldman Sachs company research report on Prysmian, focusing on the evolution of global fiber optic preform supply and demand amid data center demand, defense drones, and new capacity expansion. The report believes the key bottleneck in the optical fiber industry is preforms rather than downstream cable production. In 2026/27, strong data center and defense demand combined with capacity construction lead times are expected to drive tight supply and demand and higher prices, but new capacity coming online after 2028 could shift the market into oversupply.

Core views

The report reiterates its Buy rating on Prysmian and its €167 price target. Goldman Sachs believes that although the industry may face oversupply after 2028, near-term tight supply and demand should be sufficient to support pricing and margins in Prysmian's Digital Solutions business. In addition, Prysmian's potential 40-50% capacity expansion is tied to large framework agreements, which may reduce the company's exposure to a future industry oversupply shock. Goldman Sachs forecasts 2026/27E DS segment EBITDA to be 10%/10% above consensus and group-level EBITDA to be 2%/8% above consensus.

Analysis framework

The report builds a fiber optic preform supply and demand model, decomposing demand into data centers, communications capital expenditure, and defense drones, and estimates future supply based on capacity announcements from major manufacturers. The model further uses five types of scenario stress tests to assess the impact of data center CAGR, AI data center share, fiber density per GW, defense drone demand, and additional capacity expansion on supply-demand balance and Prysmian EBITDA.

Methodology notes

• Valuation methodssector-relative EV/IC vs. ROIC/WACC

  Relative valuation framework

  Prysmian's 12-month price target of €167 remains based on a sector-relative EV/IC and ROIC/WACC framework.

• industry_modelfiber optic preform supply/demand model

  Fiber optic preform supply and demand model

  The model uses mn fkm as the physical unit, focuses on the preform capacity bottleneck, and assesses supply-demand gaps based on demand growth, capacity expansion announcements, and construction lead times.

• scenario_analysisS/D stress tests

  Supply-demand stress tests

  The report tests the impact of stronger data center demand, a higher AI share, 10x AI fiber density, declining defense drone demand, and unannounced capacity expansion on 2029/2030 supply and demand and EBITDA.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Prysmian (PRY.MI)

  Core covered company; the report reiterates its Buy rating

  Strengths

  Benefits from tight optical fiber supply and demand in 2026/27, Digital Solutions margin expansion, and potential large framework agreements securing new capacity.

  Weaknesses

  The group has a high proportion of non-fiber businesses, limiting direct optical fiber exposure; the report states that non-fiber businesses account for approximately 96% of sales, while the DS segment accounts for approximately 8% of FY25 group sales, with more than 50% exposed to optical fiber.

  Comparison

  The report estimates DS segment 2026/27E EBITDA to be 10%/10% above consensus and group-level EBITDA to be 2%/8% above consensus.

  Risks

  Declining defense drone demand, execution risk on large transmission orders, and value-destructive acquisitions.

• Corning

  One of the world's major fiber optic preform producers and a reference point for industry supply expansion

  Strengths

  Listed as one of the world's largest preform producers and has announced a 50% expansion of U.S. optical fiber capacity.

  Weaknesses

  New capacity requires a 24-30 month construction period and cannot immediately alleviate near-term supply tightness.

  Comparison

  Listed alongside YOFC and Hengtong as one of the world's major preform producers.

  Risks

  If new industry capacity comes online in concentrated waves, it could drive oversupply after 2028.

• YOFC

  Major fiber optic preform producer and sample company in the supply-demand model

  Strengths

  An important industry company used by the report to validate 2025 demand and estimate capacity.

  Weaknesses

  The contribution from new capacity is relatively limited; the report estimates that 2025 investment corresponds to approximately 3mn fkm of new capacity.

  Comparison

  Ranked alongside Corning and Hengtong as one of the world's major preform producers.

  Risks

  Prices and margins may come under pressure after industry capacity expansion.

• Fujikura

  Participant in optical fiber capacity expansion

  Strengths

  Has announced optical fiber and cable capacity expansion in Japan and the United States, targeting approximately 3x current levels, with an incremental 43mn fkm.

  Weaknesses

  Capacity is expected to come online in FY3/30, providing limited near-term supply-demand relief.

  Comparison

  Its expansion schedule is later, with a greater impact on the 2029/2030 supply landscape.

  Risks

  If demand falls short of expectations, new capacity could exacerbate oversupply.

Key data

• 12-month price target€167The price target remains unchanged.
• Latest disclosed closing price€142.10The closing price corresponding to 02-Jul-26 in the historical price target table.
• 2025-27E demand CAGRapproximately 9%Supported by data center growth and defense demand.
• 2026/27 supply shortfallapproximately 10%/15%Demand significantly exceeds supply under the base case.
• 2025 global optical fiber demand549mn fkm cable demand; approximately 609mn fkm adjusted raw fiber demandBased on CRU, YOFC, Sterlite, and a 10% adjustment.
• Data center/communications/defense demand split12%/73%/15%Used as the assumed 2025 demand structure.
• Data center fiber demand CAGRapproximately 21% CAGR 2025-29EData center-related fiber growth under the base case.
• Defense fiber demand CAGRapproximately 6% CAGR 2025-29EPrimarily based on assumptions for tethered drone-related demand in China and Russia.
• Prysmian potential capacity expansion40-50%, midpoint 45%; approximately 18mn fkmRelated to potential $4.7bn long-term contracts and $1.2bn of three-year capital expenditure.
• Digital Solutions margin trajectoryEBITDA margin rising from 16.6% in 2025 to 27.6% in 2028Supported by optical fiber prices and tight supply and demand.

Impact & implications

For Prysmian, tight optical fiber supply and demand and higher prices in 2026/27 are key drivers of near-term earnings upgrades, particularly in the Digital Solutions segment. The medium-term investment view depends more heavily on the supply-demand inflection point: if data center CAGR is only approximately 25% or lower, the market may approach balance or oversupply in 2029; if AI data center density rises significantly or data center growth exceeds 30%, the industry may continue to face supply constraints and generate upside to earnings.

Risks

• A decline in defense tethered drone demand as geopolitical conflicts ease could cause the optical fiber market to become significantly oversupplied from 2028.
• The concentrated launch of new capacity by major manufacturers could pressure prices and margins after 2028.
• AI data center fiber density, AI share, and retrofit demand remain at an early stage, creating high uncertainty around the model assumptions.
• Prysmian's large transmission orders carry execution risk.
• Value-destructive acquisitions could weigh on shareholder returns.

What to watch

• Whether data center power demand and 2025-29E CAGR exceed 30%.
• Whether fiber density per GW in AI data centers is materially higher than in traditional data centers, particularly whether it approaches the 10x scenario.
• Whether Prysmian's 40-50% capacity expansion comes online according to the current timetable and whether it is secured by large framework agreements.
• Whether optical fiber demand related to tethered drones in China and Russia remains at current levels.
• The actual commissioning schedules of expansion projects by Corning, Fujikura, YOFC, ZTT, Fiberhome, and other manufacturers.
• Optical fiber price trends, particularly changes in ASPs in the Chinese and European markets.