Core Insights - The Madison Small Cap Fund experienced a challenging third quarter in 2025, with a decline of 1.3%, underperforming its benchmarks due to stock selection and a speculative market environment [1] Fund Performance - The small-cap index's performance was broad-based, indicating widespread challenges across the sector [1] - The fund's top five holdings were highlighted as key picks for 2025, although specific details were not provided in the summary [1] Ciena Corporation Analysis - Ciena Corporation (NYSE: CIEN) was noted as a significant investment, with a one-month return of -2.34% and a remarkable 154.00% increase over the past 52 weeks, closing at $178.26 per share with a market capitalization of $25.2 billion [2] - Ciena is positioned as a beneficiary of the capital spending boom in AI, although the fund's overall tech investments underperformed compared to the Russell 2000's tech stocks, which rose by 15% [3] AI Market Concerns - There is a prevailing fear among investors regarding the potential disruption of software business models by AI, leading to multiple compression across the software sector [3] - The company argues that fears of AI replacing critical software applications are exaggerated, citing that 60% of AI-generated answers are incorrect and that 95% of recent AI enterprise projects are failing, which undermines the notion of AI as a replacement for established systems [3]

Group 1: Celestica (CLS.US) - Citigroup upgraded Celestica's rating from "Hold" to "Buy" with a target price of $375 [1] - Analyst Atif Malik forecasts a 75% increase in capital expenditure from five major companies, including Oracle, in 2025, followed by a 40% increase in 2026 [1] - Expected growth for Celestica's communication business is projected at 77% in 2025 and 41% in 2026, with EPS estimates raised by 5% and 22% for the fiscal years 2025 and 2026 respectively [1] - Celestica operates two main divisions: Advanced Technology Solutions (ATS) and Connectivity and Cloud Solutions (CCS), with most revenue coming from the CCS division [1] Group 2: Ciena (CIEN.US) - Citigroup raised Ciena's target price significantly from $141 to $230 [2] - Ciena's data center business is experiencing strong growth momentum following Verizon's announcement to connect to Amazon's cloud service data centers [2] - Ciena specializes in optical transmission technology, serving a diverse range of clients including telecom service providers, network scale providers, cable operators, government entities, and large enterprises [2]

Core Insights - Fidium is deploying Ciena's optical technology to enhance its DASH fiber network, enabling next-generation wavelength services up to 400G across major Texas cities [1][2][3] - The collaboration aims to meet the increasing bandwidth demands of various customers, including enterprises and data centers, while ensuring high-performance data center interconnect solutions [2][4] Company Overview - Fidium is a leading provider of fiber and advanced high-capacity solutions, serving over 700 communities nationwide and recognized as one of the top 10 fiber networks by route miles [5][6][7] - The company is focused on delivering reliable, high-speed internet and network services, emphasizing a customer-first approach and continuous innovation [6][7] Technology and Infrastructure - The DASH network connects to more than 65 on-net and 40 near-net data centers in Texas, with ongoing expansion to accommodate rising demand for high-capacity, low-latency routes [3][4] - Fidium is utilizing Ciena's 6500 Reconfigurable Line System and WaveLogic coherent optics to provide up to 800Gbps per wavelength, with future scalability to 1.6Tb/s [4] Market Position and Growth - Texas is identified as one of the fastest-growing technology hubs in the U.S., and Fidium's collaboration with Ciena is positioned to support the region's infrastructure needs [4] - The partnership is expected to drive innovation and economic growth in Texas by delivering a scalable and adaptive network [4]

Core Insights - The Zacks Communication - Components industry is positioned to benefit from strong demand trends and a growing user inclination towards digital innovations, despite facing challenges such as price volatility and geopolitical tensions [1][7]. Industry Overview - The industry consists of companies providing telecom products and services aimed at developing scalable network architecture, including small cells, routers, antennas, and various connectivity products [3]. - Key products include optical and copper connectivity solutions, hybrid fiber-coaxial equipment, and devices for cable TV operators, among others [3]. Future Trends - Network convergence is a significant trend, with operators integrating voice, video, and data communications into single networks, supported by ongoing R&D investments [4]. - The industry is expected to benefit from a software-driven, data-centric approach, enhancing cloud architecture and user experience, particularly with fiber networks supporting 5G deployment [5]. Demand Dynamics - There is a robust demand for quality networking components driven by increased network usage among consumers and enterprises, alongside changing data consumption patterns favoring video content [6]. - The shift from copper to optical networks is creating strong demand for optical solutions, particularly in data centers [6]. Profitability Challenges - Short-term profitability is under pressure due to high infrastructure investments, technological obsolescence, and elevated operating costs [7]. - Geopolitical factors, including tensions in the Middle East and the Russia-Ukraine war, have led to increased raw material prices, further impacting margins [7]. Industry Performance - The Zacks Communication - Components industry ranks 30 within the broader Zacks Computer and Technology sector, indicating strong prospects as it outperforms the S&P 500 and the sector [8][10]. - Over the past year, the industry has seen a 106% increase, significantly outperforming the S&P 500's 22.3% rise [10]. Valuation Metrics - The industry currently trades at a trailing 12-month price-to-book (P/B) ratio of 6.12, below the S&P 500's 7.49 and the sector's 11.85 [13]. Notable Companies - **Corning Incorporated (GLW)**: Experienced an 85% stock surge over the past year, with a long-term earnings growth expectation of 18.2% and a Zacks Rank of 1 (Strong Buy) [16][17]. - **Ciena Corporation (CIEN)**: Achieved a 199.7% stock increase, with a long-term earnings growth expectation of 47.6% and a focus on optical networking solutions [20][21]. - **Ooma, Inc. (OOMA)**: Focuses on cloud-based communications and has seen a 15.9% earnings surprise on average over the past four quarters, with a Zacks Rank of 3 (Hold) [25][26].

Core Insights - U.S. small/mid-cap equities showed solid performance in Q3 2025, with the Aristotle Capital Small/Mid Cap Equity Strategy returning 2.57% net of fees, underperforming the Russell 2500 Index's 9.00% total return [1] Company Performance - Ciena Corporation (NYSE:CIEN) reported a one-month return of 24.77% and a remarkable 195.39% increase in share value over the past 52 weeks, closing at $188.96 per share with a market capitalization of $26.708 billion on October 30, 2025 [2] - Ciena's Q3 2025 revenue reached $1.22 billion, exceeding guidance expectations, marking an 8% sequential increase and nearly 30% year-over-year growth [4] Strategic Positioning - Ciena Corporation is positioned to benefit from strong demand for bandwidth due to its differentiated product portfolio and history of technological innovation, driven by AI-related demand and optimistic forward guidance [3]

Group 1 - Ciena Corporation is identified as a strong investment opportunity for the next decade, with a recent price target increase from BofA to $200 from $155, maintaining a Buy rating [1] - The networking and cybersecurity sectors are experiencing strong momentum and healthy fundamentals, driven by increasing enterprise security budgets and ongoing technological advancements [1] - BNP Paribas Exane also upgraded Ciena to Outperform from Neutral, raising its price target to $185 from $120, highlighting the company's favorable position to benefit from rising investments in data centers [2] Group 2 - Ciena provides hardware, software, and services for network operators across various regions, including the Americas, Europe, the Middle East, Africa, Asia Pacific, Japan, and India [2] - The company's recent multiple expansion is seen as justified, with expectations of further earnings upside due to increasing exposure to data centers [2]

Core Insights - Colt Technology Services and Ciena have successfully rolled out a new transatlantic and terrestrial terabit network to support global content providers, addressing the increasing demand for capacity driven by AI content, gaming, and streaming services [1][2] Network Capacity and Efficiency - The new network utilizes Ciena's WaveLogic 6 Extreme (WL6e) transponder, increasing capacity by 20% on a single fiber compared to previous models and achieving a 50% reduction in space, power consumption, and carbon emissions [3][4] - Colt's transatlantic capacity per wave has surged from 450 Gbps to 1.2 Tbps, representing a 140% enhancement over approximately 6,500 km, enabling support for around 44,000 simultaneous cloud gaming sessions [6][7] Market Demand and Trends - AI workloads on transatlantic cables are projected to increase from 8% of capacity in 2025 to 30% by 2035, indicating a significant rise in demand for bandwidth [4] - Content providers now consume 74% of total used international bandwidth, a substantial increase from just 5% in 2005, highlighting the growing pressure on global network capacity [4] Sustainability and Future Developments - The collaboration between Colt and Ciena aims to meet the rising demand for connectivity while aligning with sustainability goals, focusing on reducing power consumption and carbon emissions [5] - The deployment of new managed optical fiber networks across Europe and Asia is part of the strategy to support the AI era and enhance connectivity for hyperscalers and neoscalers [5]

Core Insights - Ciena's stock has increased by 25% over the past month, but Arista Networks may offer a more attractive investment opportunity due to its superior revenue growth, higher profitability, and lower valuation compared to Ciena [2][6]. Company Overview - Ciena provides hardware, software, and services for the transport, routing, switching, and management of voice, data, and video traffic on communication networks [4]. - Arista Networks specializes in global cloud networking solutions, offering extensive technical support and services beyond standard warranties [4]. Financial Performance - Arista Networks reported a quarterly revenue growth of 30.4%, while Ciena's growth was 29.4%. Over the last 12 months, Arista's revenue growth reached 26.0%, significantly higher than Ciena's 13.0% [6]. - Arista Networks demonstrates superior profitability with a Last Twelve Months (LTM) margin of 43.1% and a three-year average margin of 40.2%, outperforming Ciena [6]. Valuation Comparison - Regular assessment of investment options is crucial, and Arista Networks shows a more favorable valuation compared to Ciena, indicating a potentially better investment choice [2][5].

Core Insights - Trans Americas Fiber System (TAFS) is launching the TAM-1 subsea cable system to enhance digital infrastructure across the Americas [1] - TAM-1 is designed to provide unprecedented capacity, scalability, and resiliency [1] - This system will be the first scalable, neutral fiber system in decades connecting Central America and the Caribbean directly to the U.S. [1] Summary by Categories Infrastructure Development - The TAM-1 subsea cable system represents a significant advancement in digital infrastructure for the Americas [1] - It aims to transform connectivity by linking key markets in Mexico, Colombia, and other regions [1] Capacity and Scalability - The new cable system is expected to deliver unprecedented capacity and scalability, addressing the growing demand for digital services [1] - It is designed to be a next-generation network, enhancing the overall resiliency of the region's digital infrastructure [1]

Economic Indicators - China's September exports rose by +8.3% year-on-year, exceeding expectations of +6.6% and marking the largest increase in six months [1] - September imports in China increased by +6.4% year-on-year, surpassing expectations of +1.8% and representing the largest rise in 17 months [1] Market Reactions - Stock indexes experienced a sharp rise on Monday, recovering some losses from the previous Friday's plunge, driven by a softening of the Trump administration's rhetoric towards China [5][6] - The S&P 500 Index closed up +1.56%, the Dow Jones Industrials Index rose by +1.29%, and the Nasdaq 100 Index increased by +2.18% [6] Corporate Earnings - More than 22% of S&P 500 companies provided guidance for Q3 earnings that are expected to exceed analysts' expectations, the highest in a year [10] - Q3 profits are projected to rise by +7.2%, the smallest increase in two years, while sales growth is expected to slow to +5.9% from 6.4% in Q2 [10] Sector Performance - Chipmakers and AI infrastructure stocks rallied, with Broadcom's shares jumping over +9% following a multi-year agreement with OpenAI [5][15] - Rare earth stocks surged due to tensions between China and the US, with Critical Metals closing up more than +53% [17] - Mining stocks also increased as gold prices rose more than +3% to an all-time high, benefiting companies like Coeur Mining and Newmont [18] Upcoming Events - The market will focus on trade or tariff news and attempts to reopen the government, with major banks set to release Q3 earnings results [9]