Corning (GLW.US) optical communications revenue surged 44%, but the target price was lowered by Damo

According to Woofun AI, Morgan Stanley (MS.US) lowered the target price of Corning (GLW.US) from $165 to $155 in a research report released on October 28, 2026, and maintained a “in sync with the market” rating.

Despite Corning's optical communications business revenue showing an accelerated trend, analysts believe that the rise in production capacity has been fully reflected in expectations, and that additional revenue has not yet been converted into profits exceeding expectations; although profit forecasts have been raised, the valuation multiples have shrunk at the same time, and the target price has been lowered as a result.

The revenue growth trajectory of the optical communications business is clear and strong. Incremental sales due to the expansion of production climbed from US$150 million in the first quarter to US$225 million in the second quarter and reached US$300 million in the third quarter. According to data compiled by Woofun AI, core sales in the third quarter were 5.08 billion US dollars, up 19% year on year. Among them, optical communication revenue increased 44% year over year to 2.38 billion US dollars, and segment net profit was 532 million US dollars, up 80% year on year, accounting for about 47% of core sales. Within the division, the enterprise network business performed particularly well, with a year-on-year increase of 84%, and sales related to generative AI more than doubled; in contrast, the operator business grew 4% year over year, and demand for traditional telecommunications returned to moderate.

This structural growth validated the execution of the company's medium-term growth plan, and the expansion of production began to contribute identifiable sales revenue. It is worth noting that the customer advance payment mechanism has effectively relieved the financial pressure to expand production. Since the beginning of the year, customer prepayments have contributed 639 million US dollars to operating cash flow, supporting more than 2 billion US dollars in free cash flow during the same period. Most of the capital expenses associated with growth are supported by long-term customer agreements. This early cash payment arrangement reduces the risk of implementing production expansion, and allows the capital gap between investment in additional equipment and the release of sales revenue.

However, prepayment is not equivalent to current profit. Corning still needs to deliver products according to the agreement, and additional production capacity also needs to achieve planned production efficiency. Certainty on the capital side has not directly translated into flexibility on the profit side.

The pressure on the profit side is mainly due to three major dragging factors. The first is the solar energy business. Third-quarter revenue increased 37% year over year to $436 million, which was basically the same month on month, but the net loss was still $7 million. Production capacity for silicon wafers and modules climbed slower than expected, and start-up costs continued to erode profits. Although management believes that trade measures have improved the pricing and demand environment for solar products in the US, the slow increase in production efficiency has limited the extent to which recent profits have exceeded expectations. Second, floating remuneration consumes operating leverage. The related expenses in the third quarter were still higher than normal. The pressure was mainly on businesses other than optical communications. Management expected expenses to stabilize in the fourth quarter and be reset in 2027. Finally, the consumer side is weak. Revenue from the glass innovation business fell 3% year on year to 1.51 billion US dollars, net profit fell 10% year on year, and the increase in memory prices suppressed terminal demand, indicating that business price increases will not significantly contribute to performance until 2027. Together, these factors have weakened the financial content of growth, making it easy to overestimate short-term profit elasticity by simply observing the growth rate of AI-related businesses.

Despite the increase in earnings forecasts, the positive effects were offset by shrinking valuation multiples. Damocar raised its 2026 core revenue forecast from $19.3 billion to $19.4 billion, core EPS from $3.28 billion to $3.37; core revenue for 2027 from $22.8 billion to $232 billion, and core EPS from $4.21 to $4.37.

However, the benchmark price-earnings ratio based on 2028 profits was lowered from about 30 times to about 28 times, reflecting a contraction in the overall valuation multiples of AI-related stocks. The report points to 2027 for more powerful catalysts. In particular, the demand for optical connectivity required to expand connectivity within clusters is likely to gradually increase in the second half of the year. Downside risks are also clear, including a slowdown in AI capital expenditure, delays in capacity climbing, and continued weakness in non-optical communications businesses. Corning's core test in the next phase is to keep the results of production expansion more fully in the profit statement. The next round of valuation discussions will take over from the profit statement performance. After the financial report was announced, Corning's stock price closed up 3.88% to $131.20 on October 28, still below the target price after the reduction.