Short-term cooling in the optical chain, with implied AI multiples pulling back

Overview

This report is Barclays' biweekly update on AI-related stocks within its Information Technology Hardware and Communications Equipment coverage, focusing on cloud AI revenue mix, AI capex exposure, implied AI P/E ratios, and share price changes. This issue is titled Optical Sector Pauses, with the key changes concentrated in optical-related companies and a few stock-specific events, while most other stocks saw limited movement.

Core views

The core view of the report is that AI-related stocks have recently pulled back on average, but this does not change the medium-term logic of rising cloud AI revenue growth; pressure on CIEN and FN in the optical chain looks more like a digestion of elevated expectations after strong prior share price gains rather than a broad slowdown in optical demand; SMCI's decline is mainly due to financing and expected dilution, and while incremental orders are sizable, the delivery timeline remains uncertain; HPE continues to be viewed positively because of its results, the quality of its networking business, and conservative full-year guidance.

Analysis framework

Barclays tracks, on a biweekly basis, stocks within its coverage that are categorized as AI-related. It combines their cloud AI revenue mix, share of total AI spending, expected cloud AI revenue growth from 2025 to 2027, and current share price changes to derive implied AI P/E ratios. The report also compares pricing as of June 17, 2026 with pricing as of May 29, 2026, and adds observations on covered stocks excluded from the AI wave.

Methodology notes

• Valuation FrameworkImplied AI P/E

  Company valuation is split using core business valuation assumptions and AI business growth assumptions, thereby inferring the market's implied multiple for the AI business.

  This method is sensitive to assumptions on core business multiples, AI revenue mix, and growth, making it useful for observing changes in market expectations, but it is not equivalent to a formal target price.

• Theme GroupingAI-Related Stock Bucket

  Stocks within coverage that are typically viewed as AI beneficiaries are grouped into the same observation set.

  According to Barclays' estimates, these companies represent about 20% of total cloud AI capex, and their related cloud AI businesses are experiencing clear revenue growth.

• Time-Series ComparisonBiweekly Share Price and Multiple Tracking

  Compare current pricing with the previous observation date in terms of share prices, implied multiples, and changes in fundamental assumptions.

  This issue mainly compares June 17, 2026 with May 29, 2026 to identify stock-specific events, post-earnings sentiment, and sector theme changes.

Asset mapping & comparison

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

• AI-related stock basket

  Core tracking target, representing companies within Barclays coverage with higher exposure to cloud AI capex.

  Strengths

  Cloud AI revenue growth expectations have been revised upward, and related stocks are still up nearly 80% on average year to date.

  Weaknesses

  Average share prices have recently pulled back by a mid-single-digit percentage, and implied multiples are sensitive to stock-specific events and core business valuation assumptions.

  Comparison

  Compared with roughly 2% declines in the SPX and NDX over the same period, AI-related stocks were more volatile in this period.

  Risks

  If cloud provider capex expectations are revised downward or order conversion is slower than expected, implied multiples may continue to compress.

• Optical chain: CIEN, FN, GLW, etc.

  The AI-related sub-sector with the most concentrated volatility in this period.

  Strengths

  Still benefits from AI networking and optical communications demand, and CIEN had previously delivered strong results.

  Weaknesses

  After CIEN's sharp prior share price gain, earnings failed to meet the market's high expectations, dragging down both itself and FN.

  Comparison

  The report views this more as an adjustment after elevated expectations for optical stocks rather than an overall slowdown in the optical industry.

  Risks

  If subsequent orders, earnings, or customer demand fail to validate high valuations, optical chain valuations may continue to fall back.

• HPE

  A standout gainer among AI-related covered stocks in this period.

  Strengths

  Up 12% over the same period, supported by strong earnings, a high-margin networking business, conservative full-year guidance, and improved market sentiment.

  Weaknesses

  Its implied AI multiple has risen from a high-single-digit level to above 50x, implying a rapid valuation increase.

  Comparison

  Compared with declines in SMCI, CIEN, and FN, HPE was one of the few AI-related stocks to rise clearly in this period.

  Risks

  If networking business margins or AI momentum fail to continue, the rapidly rising implied multiple could face a pullback.

• SMCI

  An AI server-related name and one of the biggest drags in this period.

  Strengths

  The company disclosed about $39Bn of incremental AI orders, expected to be fulfilled over the next roughly 2 to 3 quarters.

  Weaknesses

  Down 40% over the same period, mainly due to expected dilution from a $7Bn equity and linked financing transaction.

  Comparison

  Compared with the latest 40x to 60x implied multiples for most AI-related stocks, SMCI remains significantly lower.

  Risks

  The company has previously missed revenue expectations, and customer readiness and the order fulfillment timeline remain unclear.

• DELL, HPE, CSCO

  Covered companies where improvements in the core business and momentum in AI businesses jointly influence implied multiples.

  Strengths

  In the prior update, Barclays raised the core business multiples of all three by one turn, citing improving traditional business performance, execution ability in a component-constrained environment, and momentum in AI businesses.

  Weaknesses

  Higher multiples mean the market has less tolerance for disappointment in both the core business and the AI business.

  Comparison

  Their current implied AI multiples are significantly higher than earlier readings.

  Risks

  If improvement in traditional businesses proves unsustainable or AI orders disappoint, valuation assumptions may be revised downward.

• Non-AI covered stocks: AAPL, GRMN, AXON, MSI, etc.

  A comparison group of covered stocks not included in the AI wave.

  Strengths

  Most are categorized as more defensive stocks, with relatively limited changes in share prices and multiples.

  Weaknesses

  They have still declined by a high-single-digit percentage on average since May 29 and remain affected by stock-specific events and market sentiment.

  Comparison

  The report compares their current multiples with their respective core P/E ratios and multiples on the previous observation date.

  Risks

  If defensive characteristics fail to offset valuation pressure or company-specific events, non-AI stocks may still experience significant volatility.

Key data

• Report Date2026-06-22Share prices and disclosed prices are mainly as of 2026-06-17.
• Sector ViewNeutralThe covered sector is Information Technology Hardware and Communications Equipment.
• Average Share Price Change of AI-Related StocksMid-single-digit declineThe period is from 2026-05-29 to 2026-06-17, during which both the SPX and NDX fell about 2%.
• Year-to-Date Performance of AI-Related StocksAverage gain of nearly 80%Despite the recent pullback, cumulative year-to-date gains remain high.
• Cloud AI Revenue Growth CAGRAbout 62% in 2023-2027EHigher than the initial estimate of about 53%, reflecting upward revisions to hyperscaler capex expectations.
• Initial Implied AI MultipleMostly 20x to 40xGLW, KEYS, and CIEN were higher, while SMCI and HPE were lower.
• Latest Implied AI MultipleMostly 40x to 60xGLW, KEYS, and CIEN remain higher; DELL, HPE, and CSCO are significantly above earlier readings; SMCI remains lower.
• Share of Cloud AI Capex Represented by Covered CompaniesAbout 20%Refers to companies within Barclays coverage that are typically classified as AI-related.
• SMCI Share Price Change-40%Mainly driven by expected dilution from a $7Bn equity and linked financing transaction, while the company also disclosed about $39Bn of incremental AI orders.
• CIEN Share Price Change-25%The report believes this was mainly because the stock had already risen sharply before earnings, and results failed to match high expectations.
• FN Share Price Change-11%Dragged by sentiment related to its manufacturing relationship with CIEN customers.
• HPE Share Price Change+12%Driven by strong earnings, news of an activist investor stake, and positive sentiment following DELL's earnings.
• Average Performance of Non-AI Covered StocksHigh-single-digit declineIncluding AAPL, GRMN, AXON, MSI, etc., while the SPX fell about 2% over the same period.

Impact & implications

The investment implication of this report is that the AI theme remains fundamentally supported, but valuations and share prices are already highly dependent on company execution, order conversion, and market assumptions about core business multiples. Short-term pressure in the optical chain may reflect repricing after elevated expectations rather than a clear deterioration in industry demand; SMCI shows massive order opportunity, but financing dilution and delivery credibility are constraints; HPE is viewed as relatively more attractive due to the quality of its networking business, its earnings, and conservative guidance.

Risks

• Implied multiples of AI-related stocks are highly sensitive to assumptions about core business multiples, AI revenue mix, and growth rates.
• Expected dilution from SMCI's financing transaction may continue to weigh on its share price and valuation.
• The fulfillment timeline for SMCI's roughly $39Bn of incremental AI orders remains uncertain, and customer readiness may affect revenue recognition.
• CIEN's earnings failed to match the high expectations created by its earlier sharp share price rise, which may continue to weigh on sentiment in the optical chain.
• If hyperscaler capex falls short of expectations, cloud AI revenue growth assumptions will weaken.
• Barclays discloses that it may have investment banking, market-making, or other conflicts of interest with covered companies, and investors should treat this report as only one factor in decision-making.

What to watch

• The next round of hyperscaler capex guidance and its impact on cloud AI revenue growth assumptions.
• The fulfillment pace of SMCI's roughly $39Bn of incremental AI orders over the next 2 to 3 quarters.
• The actual dilution impact after SMCI's financing and the market's reaction to its balance sheet.
• Whether subsequent orders, margins, and customer demand at CIEN and FN can repair sentiment in the optical chain.
• Whether HPE's networking business margins, full-year guidance, and AI business momentum remain sustainable.
• Earnings validation after core business multiple upgrades for DELL, HPE, and CSCO.
• Valuation changes in non-AI covered stocks relative to their respective core P/E ratios.