Corning (GLW.US) optical communications revenue surges 44% but Morgan Stanley lowers target price

According to Woofun AI, Morgan Stanley (MS.US) lowered its target price for Corning (GLW.US) from $165 to $155 in a research report released on October 28, 2026, while maintaining an “Equal-weight” rating.

Although Corning’s optical communications business revenue is accelerating, analysts believe that the ramp-up in capacity has already been fully reflected in expectations, and the incremental revenue has yet to translate into profits beyond forecasts; despite an upward revision in profit projections, valuation multiples contracted in tandem, leading to a reduced target price.

The revenue growth trajectory for the optical communications business is clear and strong, with incremental sales from capacity expansion rising from $150 million in Q1 to $225 million in Q2, and reaching $300 million in Q3. Woofun AI’s compiled data show that third quarter core sales reached $5.08 billion, up 19% year-over-year, with optical communications revenue jumping 44% year-over-year to $2.38 billion, and the segment’s net profit up 80% to $532 million, accounting for about 47% of core sales. Within the segment, enterprise network business performed particularly well, with annual growth of 84%, and generative AI-related sales more than doubling; by contrast, carrier business revenue grew by only 4% year-over-year, and demand from traditional telecom remained modestly recovering.

This structural growth validates the company’s ability to execute its mid-term growth plans, as capacity expansion begins to contribute incremental sales revenue. Notably, the customer prepayment mechanism has effectively alleviated the financial strain of capacity expansion, with customer prepayments contributing $639 million to operating cash flow year-to-date, supporting over $2 billion in free cash flow during the same period. Most capital expenditures related to growth are backed by long-term customer agreements, and this advance payment arrangement reduces the execution risk of expansion, bridging the funding gap between new equipment investment and the release of sales revenues.

However, prepayments do not directly equate to current profits; Corning still needs to deliver products as per agreements, and the new capacity must reach designated productivity, so certainty in cash flow does not directly translate into profit flexibility.

The pressure on the profit side comes mainly from three key drag factors. First is the solar energy business, where third quarter revenue grew 37% year-over-year to $436 million, remaining flat quarter-over-quarter, while the net loss still stands at $7 million. Ramp-up in wafer and module production capacity is slower than expected, with start-up costs continuing to erode profits; although management believes trade measures have improved pricing and demand for US-made solar products, slow improvements in production efficiency have limited near-term profit outperformance. Second, variable compensation is draining operating leverage, with related expenses still above normal in Q3; the strain mainly falls outside the optical communications business, and management expects expenses to stabilize in Q4 and reset in 2027. Lastly, consumer weakness: glass innovation business revenue fell 3% year-over-year to $1.51 billion with net profit down 10%, memory price increases are suppressing terminal demand, and price hikes for display business are not expected to significantly contribute to earnings until 2027. Together, these factors have reduced the quality of growth, making it easy to overestimate short-term profit flexibility by only looking at the AI-related business growth rate.

Despite the upward revision in profit projections, the contraction in valuation multiples offset the positive impact. Morgan Stanley has raised its core revenue estimate for 2026 from $19.3 billion to $19.4 billion, and core EPS from $3.28 to $3.37; for 2027, core revenue is raised from $22.8 billion to $23.2 billion, and core EPS from $4.21 to $4.37.

However, the benchmark P/E ratio based on 2028 earnings has been lowered from about 30 times to about 28 times, reflecting a contraction in valuation multiples for AI-related stocks overall. The report points to 2027 for more significant catalysts, especially as demand for optical connectivity in cluster internal expansion is likely to ramp up in the second half of the year. Downside risks are also clear, including a slowdown in AI capital expenditures, delays in capacity ramp-up, and continued weakness in non-optical communications businesses. The core challenge for Corning in the next phase is to ensure that the gains from expansion are more fully reflected in the profit and loss statement, with the next round of valuation discussion to be based on financial performance. Following the earnings report, Corning’s share price closed up 3.88% at $131.20 on October 28, still below the lowered target price.