High-Speed Data Centers And Fiber Networks Will Improve Long-Term Prospects

Key Takeaways

• Expansion into hyperscale, cloud, and fiber markets plus strategic acquisitions is broadening Viavi's growth opportunities and long-term revenue potential.
  
• Focus on automation, AI-driven solutions, and cost management is driving higher margins and resilience against economic and supply chain challenges.
  
• Revenue growth faces headwinds from tariff uncertainty, customer concentration, market maturity, reliance on M&A, and industry shifts toward in-house and software-defined solutions.

Catalysts

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.

• Accelerating demand for high-speed data center upgrades, including 800G and 1.6T optical infrastructure, as well as broader hyperscale adoption of fiber monitoring and lab test products, positions Viavi to benefit from the growing proliferation of data-intensive applications, supporting sustained revenue growth and improved product mix.
  
• Ongoing expansion of fiber optic infrastructure and edge networks by service providers and hyperscalers-driven by global growth in broadband data traffic and cloud computing-continues to generate robust demand for Viavi's field instruments and monitoring solutions, providing a durable, long-term growth runway for revenues.
  
• Strategic acquisitions (e.g., Inertial Labs, Spirent's business lines) are driving further diversification into aerospace, defense, and security markets, expanding Viavi's total addressable market and creating the potential for multi-year growth in both revenue and earnings.
  
• Continued investment in next-generation, automated, and AI-driven test and monitoring solutions allows Viavi to maintain differentiation and secure higher margin recurring business, which can further enhance net margins over time.
  
• Viavi's demonstrated ability to pass increased input and tariff costs directly to customers, combined with supply chain agility, mitigates margin risk and protects near
• and long-term profitability despite macroeconomic and trade uncertainties.

Viavi Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Viavi Solutions's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 15.8% in 3 years time.
• Analysts expect earnings to reach $202.2 million (and earnings per share of $0.73) by about July 2028, up from $5.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 448.7x today. This future PE is lower than the current PE for the US Communications industry at 28.4x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

Viavi Solutions Future Earnings Per Share Growth

Risks

• Persistent global tariffs and resulting uncertainty create the risk that some customer orders may be delayed or reduced, potentially leading to slippage in near-term and future revenue, while also introducing margin headwinds if costs cannot be fully passed through.
  
• Exposure to shifting customer approval cycles and delayed purchasing decisions-especially among large service providers who require reauthorization of purchase orders in response to tariff changes-can result in lumpy revenue patterns and heightened customer concentration risk if a small group of clients controls a disproportionate share of orders.
  
• Heavy dependence on cyclical demand from telecom and data center buildout phases, particularly in fiber lab, production, and wireless instrumentation, means that as these markets mature, Viavi risks facing a future where replacement spending softens and the overall addressable market begins to contract, pressuring long-term revenue and earnings growth.
  
• Although Viavi is investing in M&A (e.g., Inertial Labs, planned Spirent acquisition), prioritizing acquisitions and increasing leverage over share repurchases introduces execution risk, potential integration challenges, and the threat of margin compression or financial strain, particularly if anticipated synergies or growth drivers do not materialize as expected.
  
• The ongoing potential for customers-especially large network operators and equipment manufacturers-to pursue vertical integration or develop in-house testing solutions, combined with industry trends toward open, virtualized, and software-defined networks, may undercut demand for traditional hardware-centric test equipment and pressure both top-line growth and future gross margins.

Valuation

• The analysts have a consensus price target of $12.262 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 $8.6.
• 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 $202.2 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 8.0%.
• Given the current share price of $10.25, the analyst price target of $12.26 is 16.4% 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.