The Zhitong Finance App learned that Corning (GLW.US) recently announced its financial report for the third quarter of fiscal year 2026. Although the company's total revenue and earnings per share (EPS) both exceeded Wall Street expectations, due to weak performance in non-core businesses such as solar energy and consumer electronics, the company's fourth quarter performance guidance was slightly poor. Combined with market concerns about the sustainability of AI infrastructure spending, Corning's stock price fell about 1% on the same day.
In response, Morgan Stanley and Bernstein both stated that Corning's Q3 optical communications business performed well and that AI-related demand was strong, but both companies maintained a “neutral” rating, pointing out that factors such as losses in the solar energy business dragged down performance, weak demand for consumer terminals, and floating remuneration suppressed short-term profit margins, and that further increases in stock prices required substantial improvement in profit margins.
Morgan Stanley believes that the core catalyst lies more on the large-scale release of optical communications in the second half of 2027, and the reduction in the target price stemmed from the AI sector's overall valuation compression; Bernstein is cautious about the company's long-term growth targets, believing that the advantages of optical communication are more reflected in stock prices, which also suggests that the Q4 guidance is weak, but it also believes that if the AI sector's sentiment weakens, Corning's downside risks are relatively limited.
The optical communication business became the only highlight, and growth was driven by enterprise and AI demand
According to financial reports, Corning's total revenue for the third quarter reached US$5,081 billion, higher than the market consensus estimate of US$5,019 million; adjusted earnings per share were US$0.91, which also exceeded market expectations of US$0.88. However, behind this apparently impressive report card, almost all of the driving force behind the performance that exceeded expectations came from the strong performance of the Optical Communications (Optical Communications) business, while other business segments generally fell short of expectations.
As Corning's core growth engine, the third-quarter revenue of the optical communications business reached US$2,379 million, far exceeding market expectations of US$2,224 million. The business's revenue increased 44% year over year, with the enterprise (enterprise) growth rate as high as 84%, sales related to Gen AI more than doubled, and the carrier (carrier) business increased 4% year over year.
Notably, the incremental revenue of the optical communications business showed an acceleration trend. The increase in the third quarter was about 300 million US dollars, significantly higher than the second quarter's 225 million US dollars and the first quarter's 150 million US dollars. This confirms the company's ability to achieve the 19% compound annual growth rate (CAGR) target in the 20-30-40 long-term growth framework. Furthermore, the business's profit margin performance was also strong, reaching 22.4%, higher than market expectations of 21.3% and Bernstein's expectations of 20.5%.
Morgan Stanley stated in a report that Corning is effectively using long-term customer agreements to support its capacity expansion. Currently, most of the capital expenditure associated with growth is supported by long-term customer agreements, and customer prepayments fund capacity construction. So far this year, customer deposits have contributed US$639 million to operating cash flow, supporting more than US$2 billion in free cash flow. Damo believes that this model is an important risk mitigation mechanism during the production capacity climbing phase of Springboard's plan, especially in the context of accelerated investment in optical communication production capacity.
Solar energy and consumer electronics businesses continue to be under pressure, and variable compensation suppresses profit margins
In stark contrast to the strength of the optical communications business, Corning's other business segments generally showed weak performance in the third quarter. Solar (Solar) business revenue was US$436 million, up 37% year over year, but remained flat month-on-month, far below market expectations of US$501 million. The business segment recorded a net loss of US$7 million.
Corning management explained that this is mainly due to wafer and component production capacity climbing slower than expected, but market demand is still strong. Morgan Stanley pointed out that the cost of starting solar energy production is still a drag. Although the recent Section 232 trade law has improved the pricing environment, slow productivity increases have limited recent profit upward space, and profit margins are expected to gradually improve in 2027.
Glass Innovations (Glass Innovations) business revenue fell 3% year over year to US$1.51 billion, and net profit fell 10% year over year, mainly due to rising memory prices squeezing the consumer electronics market. Among them, sales of televisions fell 4%, and sales of notebooks and handheld devices fell by about 20%. Although Corning continues to outperform the terminal market by increasing the content volume of a single device, Morgan Stanley believes that in an environment where consumer demand is weak, there is limited room for growth recently, and the recently announced monitor price increases are not expected to bring substantial benefits until 2027. The automotive (Automotive) business had revenue of $470 million, slightly exceeding expectations, but the profit margin of 14.3% fell short of 17% expected by the market.
Additionally, Morgan Stanley specifically mentioned that Variable Comp (Variable Comp) remained above normal in the third quarter, in line with high spending in the second quarter. Although management expects these costs to stabilize in the fourth quarter and be reset in 2027, this is still suppressing the profit margins of the non-optical communications business and limiting recent operating leverage.
The Q4 guidance falls short of the expectations of some institutions, and 2027 is seen as a key catalyst window
Corning expects fourth-quarter revenue to be between $5.2 billion and $5.3 billion, with earnings per share between $0.96 and $1.00. This revenue guide was lower than Bernstein's previous forecast of $5.4 billion, but the earnings per share guide was higher than the market consensus of $0.93. The company did not update its long-term growth framework, nor did it provide incremental guidance for 2027.
Based on the latest financial report, Morgan Stanley raised Corning's 2026 core revenue forecast to $19.4 billion and earnings per share forecast to $3.37 billion; raised the 2027 revenue forecast to $23.2 billion, and the earnings per share forecast to $4.37 billion.
However, despite raising earnings forecasts, Damo lowered its target price from $165 to $155, and lowered the valuation multiplier under the benchmark scenario from 30 times to about 28 times (based on earnings per share of approximately $5.60 for the 2028 fiscal year).
Damo explained that this reflects the reduction in the overall valuation multiples for AI-related targets and the recent relatively balanced market pattern. Damo believes that although the acceleration of demand on the corporate side and the continued expansion of production capacity have supported premium valuations, the catalyst for recent valuation expansion is limited, and a larger catalyst may not appear until 2027. At that time, the volume of demand for optical communication will become more clear, and the negative factors of solar energy will subside.
Bernstein set a target price of $140 (based on 25 price-earnings ratio of $5.7 per share for fiscal year 2028). The bank said that Corning's long-term growth framework is aggressive, and its model predicts that the company's revenue will reach 28 billion US dollars in 2028, which is slightly lower than the implicit level of the company's growth framework and market consensus.
However, Bernstein also acknowledged that Corning has substantial room for content growth in the AI accelerator field, and the model predicts that the compound annual growth rate of enterprise-side optical communication revenue will reach 51% from 2026 to 2028, while the automotive and glass innovation business is still a drag on growth.