Last Update 14 Dec 25

VIAV: Future AI Data Center Demand And Acquisitions Will Shape Risk Reward Balance

Analysts have raised their price target on Viavi Solutions to $23 from $16, citing the accretive Spirent asset acquisition, increasing exposure to AI data centers and aerospace defense, and the potential for higher revenue growth and margins as key drivers of the upward revision.

Analyst Commentary

Bullish analysts highlight that the Spirent asset acquisition is not only accretive but also strategically expands Viavi's presence in Ethernet, security, and emulation. They view these areas as highly complementary to its existing portfolio and supportive of a higher long term growth algorithm.

They also emphasize that the recent acquisition of Inertial Labs positions Viavi to capture incremental demand from aerospace defense customers, a segment viewed as structurally growing and less cyclical than traditional communications testing markets.

The collective view among recent price target revisions is that Viavi's blend of organic and inorganic growth, particularly its increased exposure to AI Optical and AI data centers, warrants a rerating of the stock's valuation multiples, assuming successful execution on integration and cross selling opportunities.

With multiple firms moving to more constructive stances and raising targets into the high teens and low 20s, the Street is increasingly framing Viavi as a targeted way to gain exposure to secular AI infrastructure growth rather than a slower moving legacy telecom test equipment story.

Bullish Takeaways

Bullish analysts argue that the Spirent deal meaningfully lifts revenue scale and margin profile, supporting higher earnings power and justifying the move in price targets toward the low 20s.
Increased exposure to AI Optical and AI data centers is seen as a durable, multi year growth driver that could support both faster top line expansion and multiple expansion compared with traditional communications peers.
The addition of aerospace defense capabilities via Inertial Labs is viewed as a high quality diversification play that broadens Viavi's end market mix and may reduce cyclicality, improving the risk reward profile.
Recent upgrades from neutral stances signal growing confidence in management's ability to integrate acquisitions, execute on cross selling, and deliver upside to current revenue and margin expectations.

Bearish Takeaways

Bearish analysts remain cautious that valuation may be getting ahead of near term fundamentals if integration synergies from Spirent and Inertial Labs ramp more slowly than expected.
There is concern that competition in high speed Ethernet and AI Optical testing could pressure pricing and limit the extent of margin improvement that is embedded in more optimistic models.
Some skeptics question whether aerospace defense demand will remain as robust if budget priorities shift, which could temper the diversification benefit currently being factored into bullish scenarios.
Execution risk around combining multiple acquired platforms, integrating teams, and maintaining product roadmaps could create volatility in results and justify a more conservative valuation framework.

What's in the News

Formed a strategic partnership with QNu Labs to co develop quantum security and network intelligence technologies, and to help establish a global consortium for quantum safe communications across telecom, finance, aerospace, defense, and government markets (Key Developments)
Received a U.S. Department of Transportation award under the CPNT Action Plan Rapid Phase II to integrate and test SecureTime GEO L and SecurePNT timing solutions for resilient, GPS independent critical infrastructure timing (Key Developments)
Partnered with Calnex Solutions to launch comprehensive Open RAN testbeds covering protocol, signal, and timing domains, aimed at simplifying and reducing the cost of multivendor 5G and 6G Open RAN certification pre testing (Key Developments)
Expanded the ONE LabPro platform with the ONE 1600ER module and advanced MAP 300 enhancements to support next generation 1.6Tb optical components and AI driven data center scaling, including demonstrations at ECOC 2025 (Key Developments)
Introduced new rugged OneExpert Fiber and OneExpert HFC handheld testers to accelerate multi gig last mile fiber and DOCSIS service activation up to 10 Gbps, with integrated test process automation for field technicians (Key Developments)

Valuation Changes

Fair Value Estimate: Unchanged at approximately $18.43 per share, indicating no model based shift in intrinsic value assumptions.
Discount Rate: Risen very slightly from about 8.56% to 8.56%, reflecting a marginal increase in perceived risk or required return.
Revenue Growth: Eased slightly from roughly 15.38% to 15.32%, suggesting a modest tempering of forward growth expectations.
Net Profit Margin: Improved marginally from about 24.16% to 24.20%, pointing to a small uptick in anticipated profitability.
Future P/E: Essentially unchanged, edging up from around 12.54x to 12.54x, implying stable valuation multiples on projected earnings.

Strong demand for advanced optical and fiber solutions, driven by data center and fiber network upgrades, is propelling long-term structural revenue growth.
Diversification into aerospace and defense plus increasing recurring revenue are reducing dependence on volatile markets and stabilizing earnings.
Prolonged weakness in core markets, supply chain and geopolitical risks, and integration challenges from acquisitions heighten revenue volatility, margin pressure, and overall financial risk.

Catalysts

About Viavi Solutions

Provides network test, monitoring, and assurance solutions for communications service providers, hyperscalers, network equipment manufacturers, original equipment manufacturers, government, and avionics customers in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa.What are the underlying business or industry changes driving this perspective?

Viavi is experiencing robust and sustained demand across the data center ecosystem, with customers updating optical connectivity to 400G, 800G, and now 1.6T-enabling multi-year upgrade cycles and expanding its total addressable market, which should drive structural revenue growth through 2026 and beyond.
The rapid proliferation of fiber broadband deployments for both hyperscale data interconnect and traditional carrier networks, coupled with aggressive announced spending by North American fiber operators, points to a significant near-term acceleration in fiber-related test equipment orders-supporting higher future revenues.
Viavi's advanced 1.6T test solution puts it technologically ahead of competitors, leading to new customer wins and anchoring follow-on orders throughout the optical and data center value chain-likely sustaining elevated gross margins and margin expansion as volumes scale.
Diversification into high-growth verticals such as aerospace and defense, boosted by successful acquisitions (e.g., Inertial Labs), is shifting the revenue mix away from volatile service provider spend and creating more predictable, recurring revenue streams that should stabilize and incrementally lift earnings.
Increasing demand for end-to-end network instrumentation from the data center sector, now viewed as mission-critical, should reduce historical cyclicality linked to telecom service provider budgets and provide more consistent revenue visibility and smoother earnings trajectory.

Viavi Solutions Earnings and Revenue Growth

Viavi Solutions Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Viavi Solutions's revenue will grow by 5.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 3.2% today to 17.7% in 3 years time.
Analysts expect earnings to reach $227.3 million (and earnings per share of $0.49) by about September 2028, up from $34.8 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, down from 73.8x today. This future PE is lower than the current PE for the US Communications industry at 25.6x.
Analysts expect the number of shares outstanding to grow by 0.65% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Viavi Solutions Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company faces persistent weakness in its wireless infrastructure test business, with recovery continuing to be delayed due to ongoing business weakness at leading wireless network equipment manufacturers; if this trend persists, it could limit growth in Viavi's wireless segment and negatively impact overall revenue and earnings growth.
Service provider and cable customer segments remain subject to significant cyclicality and delayed spending, with upgrades and large deployments being pushed out due to operator financial dynamics-this ongoing unpredictability in core markets could curtail steady revenue recovery and create volatility in earnings.
Viavi's data center ecosystem segment is growing rapidly, but the company acknowledges that a substantial portion of manufacturing and supply chain flows through regions like China, Thailand, and Vietnam, all of which remain exposed to geopolitical risks, tariffs, or supply chain disruptions-potential regulatory, trade or sourcing shocks could raise costs and impair profit margins.
In OSP, while the core anti-counterfeiting and 3D sensing segments are stabilizing, growth is constrained by high penetration and lack of volume growth at key customers, meaning topline expansion may be limited until new products or markets are realized, risking longer-term stagnation of revenues.
The current business expansion strategy is reliant on successful integration of recent and pending acquisitions (e.g., Inertial Labs and Spirent assets) and supported by new debt financing ($600M Term Loan B); if integration is unsuccessful, if synergies fail to materialize, or if gross/net leverage targets are missed, it could pressure margins and net earnings, leading to increased financial risk.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $14.0 for Viavi Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.0, and the most bearish reporting a price target of just $12.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $227.3 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 8.5%.
Given the current share price of $11.5, the analyst price target of $14.0 is 17.9% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

AI Optical Expansion And Acquisitions Will Drive New Market Opportunities