Summary of 4Q25 CIO Survey Takeaways Industry Overview - **Industry**: Telecom & Networking Equipment - **Region**: North America Key Points Communications Spending Growth - The 4Q25 CIO survey indicates a year-over-year deceleration in Communications spending growth, with expectations for 2026 set at **2.2%**, down **87 basis points** from the **3Q25** survey and **27 basis points** below the **2025** expectations of **2.4%** [3][7][22] - Overall IT budgets are expected to grow at **3.4%** in 2026, a decline of **41 basis points** from **3.8%** in the 3Q25 survey [3][7] Budgetary Environment - The up-to-down ratio, which measures the ratio of CIOs expecting to revise their budgets higher versus lower, decreased to **0.5x** in 4Q25 from **0.8x** in 3Q25, indicating a more cautious outlook [3][18] - The survey results suggest a weakening overall budgetary environment, contrasting with positive checks on networking spending [3][7] Networking Equipment Priority - Networking equipment remains the **8th priority** for CIOs, consistent with the 3Q25 survey, and its defensibility improved to **8th** from **9th** in the previous survey [3][7][12] - Despite the deceleration in Communications growth, checks indicate a strong networking spending environment driven by data center and campus spending, with no signs of weakening enterprise customer sentiment [3][7] Growth Drivers for Specific Companies - Continued growth drivers for **Cisco Systems (CSCO)** and **F5 Networks (FFIV)** include product refreshes and share gain opportunities, which are expected to sustain spending for these companies [7][8] AI and Cloud Trends - **Artificial Intelligence (AI)** projects are a top priority, with **81%** of CIOs expecting to roll out their first AI project by 2026, up from **79%** in 3Q25 [14][30] - Long-term expectations for public cloud usage are rising, with CIOs anticipating **67%** of workloads to be in the public cloud by the end of 2028, compared to **47%** today [15][27] CIO Sentiment - The sentiment among CIOs reflects a cautious approach towards budget revisions and spending, with networking equipment remaining a stable priority despite overall spending deceleration [3][12][18] Additional Insights - The survey indicates that **16%** of CIOs expect AI/ML projects to have the largest spend increase, reflecting a growing focus on AI-related investments [14] - The prioritization of networking projects remains stable, with **4.0%** of CIOs expecting networking equipment to see the largest spend increase in 2026 [12][23] This summary encapsulates the key findings from the 4Q25 CIO survey, highlighting trends in communications spending, networking equipment priorities, and the impact of AI and cloud technologies on future budgets.

Summary of Key Points from the Conference Call Industry Overview - The report discusses the **global AI networking supercycle** driven by technology upgrades and supply shortages, particularly in the optical transceiver market [3][6][12]. - The focus is on **AI infrastructure investments** from global hyperscale AI cloud companies, which are expected to continue through **2026 and 2027** due to competition in large language model (LLM) training and inference [6][14]. Core Companies and Recommendations - **InnoLight (300308 CH)**: Maintained as a **Buy**; expected to dominate the high-end market due to strong R&D and production capabilities, benefiting from the transition to **1.6T transceivers** and **SiPh technology** [3][12]. - **YOFC (6869 HK)**: Upgraded to **Buy** from Neutral; the AIDC business is experiencing strong demand, and the telecom market is stabilizing [3][12]. - **TFC (300394 CH)** and **T&S (300570 CH)**: Both rated as **Buy**; expected to benefit from the CPO value chain and demand for high-end optical transceivers [3][12]. Market Dynamics - **Transceiver Shipments**: Estimated growth from **20 million** units of 800G transceivers and **2.5 million** units of 1.6T transceivers in **2025** to **43 million** and **20 million** units respectively in **2026** [3][7]. - **Market Share**: SiPh transceivers are projected to capture **50-70%** of the market share in the 1.6T segment by **2026** [7]. - **Component Shortages**: Persistent shortages in optical chips are expected to continue, benefiting dominant players with potential price and margin increases [6][7]. Technology Trends - **Optical Transceivers**: The migration to **SiPh** and the introduction of **CPO** technologies are key drivers for the market in **2026** [7][12]. - **Copper Cables**: Despite narratives suggesting a shift to optical communication, copper cables are expected to maintain a significant role in scale-up networks due to their cost advantages and efficiency [8][10]. - **AI Switches**: The adoption of **CPO switches** is increasing, with companies like **Broadcom** and **Nvidia** leading the charge in developing high-performance networking solutions [11][12]. Financial Projections - The report anticipates that the **high-speed copper cable market** could double, reaching **USD 2.8 billion** by **2028** [10]. - The **AI data center** market is expected to expand significantly, with increased demand for high-bandwidth and low-latency solutions [6][14]. Competitive Landscape - Major players in the optical transceiver market include **Nvidia**, **Google**, and **Meta**, each developing proprietary technologies to enhance their AI infrastructure [37][51]. - The competition is intensifying as companies strive to establish their networking standards, such as **Nvidia's NVLink** and **Broadcom's SUE** [20][27]. Conclusion - The global AI networking market is poised for significant growth driven by technological advancements and increasing demand from hyperscale AI companies. Key players are expected to benefit from ongoing innovations and market dynamics, making them attractive investment opportunities.

Group 1 - Piper Sandler raised the target price for Palo Alto Networks from $230 to $265, maintaining an "overweight" rating [1]

Core Insights - JPMorgan's blockchain division Kinexys and Digital Asset announced plans to natively deploy JPMorgan's USD-backed token JPM Coin (JPMD) on the privacy-focused and compliant Canton Network [1] - The integration is set to progress in phases starting in 2026, with initial focus on supporting the issuance, transfer, and near-instant redemption of JPM Coin on the Canton Network [1] - Kinexys aims to explore the integration of other digital payment products into the Canton Network, following the selection of Canton Network by DTCC for the tokenization of traditional financial assets [1]

Core Viewpoint - Piper Sandler upgraded Arista Networks from "Neutral" to "Overweight" and raised the target price from $145 to $159, citing the company's growing market share in data centers and enterprise campuses [1] Group 1: Business Performance - Nearly half of Arista's business comes from major clients such as Meta, Microsoft, and Oracle, with expected capital expenditures from these clients projected to grow approximately 50% year-over-year [1] - Arista has historically provided conservative guidance on sales and profit margins, with actual figures averaging 11% and 4.4% higher than initial guidance, respectively [2] Group 2: Market Strategy - The company is expected to see a shift in capital expenditure structure towards networking equipment, as full capital inflow may not be realized in the next two years [1] - The business structure is leaning towards cloud and AI giants, which may lead to a short-term decline in gross product margins (GPM) [1] - Increased investments in the enterprise market are driven by new leadership, benefits from campus network upgrades, changes in competitive landscape, and the acquisition of VeloCloud, aimed at enhancing capabilities in cognitive branch networking [1] Group 3: Acquisition Impact - Arista's acquisition of VeloCloud's SD-WAN assets from Broadcom last summer is intended to improve its capabilities in zero-touch operations and automated troubleshooting across enterprise environments [1]

Core Viewpoint - Piper Sandler upgraded Arista Networks (ANET.US) from "Neutral" to "Overweight" due to the company's increasing market share in data centers and enterprise campuses, raising the target price from $145 to $159 [1] Group 1: Business Performance - Nearly half of Arista's business comes from major clients such as Meta (META.US), Microsoft (MSFT.US), and Oracle (ORCL.US), with expected capital expenditures from these clients projected to grow approximately 50% year-over-year [1] - The capital expenditure structure is anticipated to shift towards networking equipment, as Arista may not see full capital expenditure inflows for about two years [1] Group 2: Market Strategy - The business structure is expected to lean towards cloud and AI giants, which may lead to a short-term decline in gross product margins (GPM) [1] - Increased investments in the enterprise market are driven by new leadership, benefits from campus network upgrades, changes in competitive landscape, and the acquisition of VeloCloud, which may still require building its own SSE [1] Group 3: Acquisition Impact - Arista's acquisition of VeloCloud's SD-WAN assets from Broadcom (AVGO.US) aims to enhance its capabilities in cognitive branch networking, enabling zero-touch operations and automated troubleshooting across enterprise environments [1] Group 4: Financial Guidance - Historically, Arista has provided conservative guidance for its sales and profit margins, with actual figures averaging 11% and 4.4% higher than initial guidance, respectively [2]

Summary of Key Points from J.P. Morgan's Predictions for 2026 Company: Apple 1. **Product Cycle and Cost Management**: The key driver for Apple's upside in 2026 will be the product cycle and cost management rather than AI advancements. The iPhone 17 and 18 cycles will focus on traditional features like form factor and camera, with AI playing a lesser role in differentiation [1][14] 2. **AI Partnerships**: Apple is expected to partner with leading AI model companies to enhance Siri, but consumer interest in AI differentiation remains low, focusing instead on basic AI features [1][2] 3. **Executive Changes**: Significant changes in top personnel at Apple are anticipated as the company positions itself for AI leadership. The average age of the leadership team is around 59 years, and strong hiring momentum in AI is expected to continue [2] Industry: Electronic Manufacturing Services (EMS) and Contract Manufacturers 1. **Modest Year Ahead**: The EMS and contract manufacturers are expected to have a modest year in 2026 compared to 2025, with share price upside tied to earnings revisions rather than multiple expansions [3] 2. **Earnings Revisions**: The share price upside for EMS/CMs in 2026 will be limited compared to the previous year, as the group has already seen a re-rating in earnings multiples [3] AI and Networking 1. **AI Networking Growth**: AI Networking is expected to grow faster than AI Compute due to customer focus on optimizing compute spend and the scaling of AI clusters, leading to increased networking interconnects [7] 2. **Optics Market**: The optics market is anticipated to benefit significantly from the AI investment cycle, with a focus on AI Networking and the share of optics within networking driving outperformance [8] 3. **Investment Strategy Shift**: Investor interest is expected to shift from suppliers with high leverage to merchant GPUs to those with custom ASICs, driven by a more favorable outlook for custom ASICs in AI compute [6] Enterprise Spending and Cost Dynamics 1. **Challenged Enterprise Spending**: Traditional IT spending is expected to be crowded out by cloud AI spending, leading to muted refresh and upgrade cycles for traditional IT [9] 2. **Cost Inflation Management**: Suppliers are expected to manage cost inflation effectively, with limited risks to pass-through costs to end customers due to the urgent need for AI infrastructure [10] 3. **Supply Constraints**: Supply constraints are anticipated to impact growth linearity and share price upsides in 2026, with revenue drivers for AI suppliers expected to accelerate despite non-linear growth paths [11] Market Outlook 1. **Earnings Revisions and Multiple Expansion**: The first half of 2026 is expected to see share price upside driven by earnings revisions, while the second half may offer opportunities for multiple expansion as clarity on 2027 capex plans improves [12] 2. **Investor Sentiment**: The sentiment towards AI-levered suppliers was weaker in the first half of 2025, but improved in the second half, indicating a potential trend for 2026 [18] Additional Insights 1. **Tariff Impact**: Tariff-related headwinds are expected to be less impactful than previously feared, with limited implementation of announced tariffs [28] 2. **Automotive Sector Trends**: The automotive sector, particularly in relation to electric vehicles, remains an area of disillusionment, with consumer preferences shifting away from EVs [29]

Core Insights - Google Cloud has expanded its strategic partnership with Palo Alto Networks by signing a nearly $10 billion multi-year contract, marking the largest security service deal for Google Cloud to date [1] - The collaboration will focus on the development of AI-driven security services, responding to the increasing demand for such solutions as generative AI tools are increasingly used in cyberattacks [1][2] Partnership Details and Funding Usage - The $10 billion contract will be executed in phases, with part of the funding allocated to migrating existing services to Google Cloud and the majority directed towards developing new AI-based security services [2] - The demand for security services has surged due to AI advancements, with Palo Alto's president comparing the current situation to the early days of cloud computing, highlighting new security threats [2] AI Reshaping Cybersecurity Landscape - Cyberattacks are increasingly utilizing generative AI tools, which are also key technologies for security service providers to enhance defenses [2] - Both Google and Palo Alto Networks are significantly investing in AI security solutions, with Google awaiting regulatory approval for its $32 billion acquisition of security firm Wiz, and Palo Alto having launched AI-driven security services and announced a $3.35 billion acquisition of software company Chronosphere [2] Strategic Partnership History and Competitive Advantage - Google Cloud and Palo Alto Networks have had a strategic partnership since 2018, with Palo Alto's CEO previously serving as a Google executive [3] - The new collaboration highlights Google Cloud's differentiated advantage in the AI-driven competitive landscape compared to other major cloud service providers like Amazon and Microsoft, marking a significant breakthrough in the enterprise AI security service market [3]

Summary of Conference Call Notes Industry Overview - **Industry**: Networking Equipment - **Key Focus**: AI infrastructure and data center networking Core Insights and Arguments 1. **Market Performance**: In 2025, networking coverage increased by approximately 37% year-over-year, outperforming the S&P 500, which grew by 16% [1][9] 2. **Key Players**: - **Celestica (CLS)**: Stock price increased by 213% and is positioned as a leading provider of AI infrastructure equipment [2][9] - **Arista Networks (ANET)**: Valued at a premium P/E of approximately 39X, expected to benefit from AI infrastructure growth [2][4] - **Cisco (CSCO)**: Maintains a neutral stance but is expected to participate in AI infrastructure projects [1][2] 3. **AI Ethernet Switch Market**: Projected to grow from approximately $8 billion in 2025 to around $59 billion by 2029, driven by complex networking requirements for AI data centers [1][4] 4. **Hyperscale Capex Growth**: Expected to grow by approximately 32% year-over-year in 2026, reaching nearly $550 billion, supporting demand for data center networking [2][14] 5. **Data Center Infrastructure**: Major AI players like Meta, OpenAI, and Microsoft are expected to drive continued investment in data center infrastructure, with cloud provider capex projected to grow from approximately $294 billion in 2024 to $1.4 trillion by 2029 [14][18] Additional Important Insights 1. **Campus Networking**: The campus switching market is expected to grow by 6% year-over-year in 2026, driven by device refreshes and modernization efforts [5] 2. **XPU Diversification**: Increasing interest in custom ASICs and alternatives to NVIDIA GPUs is anticipated to create demand for bespoke networking equipment [4][42] 3. **Scale-Up and Scale-Across Opportunities**: - Scale-up networking revenue is expected to grow to approximately $10.7 billion in 2026, while the DCI market is projected to grow by 25% year-over-year to $3.8 billion [4][47] - Ethernet-based scale-out networks are expected to see spending growth of approximately 126% year-over-year in 2026 [47] 4. **Market Share Dynamics**: Celestica and Arista are leading in the backend AI Ethernet data center networking market, with shares of 29% and 22% respectively [52] 5. **Emerging Trends**: Full-rack integrated solutions combining networking and compute are gaining traction, with companies like Celestica and Cisco ramping up offerings [45][46] Conclusion The networking equipment industry is poised for significant growth driven by AI infrastructure demands, with key players like Celestica, Arista, and Cisco positioned to capitalize on emerging opportunities. The focus on custom solutions and the expansion of data center capabilities will be critical in shaping the market landscape through 2026 and beyond.

Summary of Telecom & Networking Equipment Conference Call Industry Overview - The conference call focused on the **Telecom & Networking Equipment** industry in **North America** with a specific emphasis on the **AI trade** and **optical componentry** market [1][3][4]. Key Points 1. Performance Metrics - Networking returns in 2025 were concentrated in AI and optical trades, with a **100% return YTD** for optical [1]. - The overall networking universe returned approximately **55% YTD**, outperforming NASDAQ by about **35%** [3]. - AI names saw a **110% increase** in returns, building on an **85% return** from the previous year [3]. 2. AI Trade and Optical Market - The AI trade has broadened beyond semiconductor names, positively impacting infrastructure, particularly in optical [3]. - Optical components led the AI basket performance with a **155% increase** and **40% estimate revisions** [3]. - The expectation is that the AI trade will continue, especially in optical, through the first half of 2026, but selectivity will be necessary for full-year returns [4]. 3. Investment Recommendations - Upgrades were made for **MSI** to Overweight (OW), with continued OW ratings for **AXON**, **CSCO**, and **ANET** [1][4]. - Companies expected to attract excess returns from the AI trade include **GLW**, **CIEN**, **LITE**, and **COHR** [4]. - Core networking names like **CSCO** and **ANET** are highlighted as attractive opportunities due to Ethernet's growing market share [5][9]. 4. Caution on Pricing and Market Dynamics - There is caution regarding the sustainability of pricing in the optical market due to increased competition and capacity investments [4]. - If capital expenditure (capex) data points continue to be revised positively, expectations for optical names may hold throughout the year [4]. 5. Public Safety Sector - The public safety sector, particularly companies like **AXON** and **MSI**, is viewed as well-positioned for growth due to high public safety budgets and the impact of OBBBA funding [10][60]. - Despite recent underperformance, there is optimism for recovery in public safety names as demand conditions improve [10][11]. 6. Company-Specific Insights - **Cisco (CSCO)** is expected to benefit from a multi-year campus upgrade cycle and increased AI contributions, with a price target raised to **$91** [34][37]. - **AXON** is projected to maintain a durable growth opportunity with a price target of **$713**, reflecting a strong market position in public safety [50][56]. - **MSI** was upgraded to OW with a price target of **$436**, citing reasonable valuation levels and growth drivers in public safety [60][71]. - **Ciena (CIEN)** is experiencing strong demand but is currently trading at a premium, leading to a cautious outlook despite positive near-term demand [72][74]. 7. Risks and Considerations - Risks include potential tariff impacts, macroeconomic uncertainties, and the timing of public safety spending [56][71]. - The optical component market faces challenges from increased competition and supply chain issues, which could affect pricing and margins [95][96]. Conclusion The conference call highlighted a robust outlook for the Telecom & Networking Equipment industry, driven by AI and optical components, while also emphasizing the need for selectivity in investments due to market dynamics and pricing pressures. The public safety sector remains a focal point for growth, with several companies positioned to capitalize on favorable funding and demand conditions.