Key Points
Ciena beat on sales and earnings this morning.
Guidance for Q4, however, suggests gross profit margins may slip.
Ciena (NYSE: CIEN) stock tumbled 9.5% through 1:30 p.m. ET Thursday despite beating on earnings this morning.
Heading into the company's fiscal Q3 2026 report, analysts forecast Ciena would earn $1.72 per share (non-GAAP) on $1.63 billion in sales. In fact, Ciena earned $2.11 per share on $1.67 billion in sales.
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So why aren't investors cheering Ciena's performance?
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Ciena Q3 earnings
Sales, after all, surged 37% year over year in Q3, and non-GAAP earnings more than tripled. Earnings calculated under generally accepted accounting principles (GAAP) weren't quite as good as the non-GAAP number, but at $1.83 per share, were still five times as much as Ciena earned in Q3 2025.
CEO Gary Smith called the company's performance last quarter "outstanding" and confirmed, "AI continues to drive compounding waves of network investment."
CFO Marc Graff predicted Ciena will deliver "increasingly profitable growth" as it expands its production capacity to support the AI revolution.
What's next for Ciena stock
What does this mean for investors?
Ciena forecasts that it will deliver about $1.75 billion in revenue in Q4. Management didn't provide GAAP earnings guidance but noted that its gross profit margin for the quarter will be only about 45%. While that's within the margin of error for the 45.4% gross margin Ciena reported for Q3, it still suggests margins might dip slightly.
Is 40 basis points of gross margin slippage enough to explain the stock's near-10% sell-off today? Actually, it may be -- when you consider how priced for perfection Ciena stock already was. Valued at 120 times earnings, Ciena might be worth its price if it succeeds in averaging 75% annual earnings growth over the next five years, as Wall Street forecasts.
If margins suffer and Ciena's growth slows, however -- look out below.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ciena. The Motley Fool has a disclosure policy.