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Why NeoPhotonics Corp Shares Jumped Today

Image Source: NeoPhotonics.

What: Shares of NeoPhotonics Corp (NYSE: NPTN) were surging Monday alongside other fiber optics technology specialists including Lumentum Holdings (NASDAQ: LITE) on a bullish industry note from analyst firm Needham & Co. As of 1:04 p.m. EDT, NeoPhotonics shares were up 17%.

So what: The Needham analysts said they saw a "mega cycle" coming in fiber optics networking, adding that the rise of China, metropolitan networking market, and data center proliferation in cloud computing would contribute to a boom in demand.

The analysts noted that the "bulk of the optical components industry" is sold out already, meaning the spike in demand should propel a significant increase in orders.

Now what: Needham lifted its rating on the group of four stocks to Strong Buy, which also includes Infinera Corporation (NASDAQ: INFN) and Oclaro (NASDAQ: OCLR) as Oclaro and Lumentum both rose about 8% on the upgrade.

Needham placed an $18 price target on NeoPhotonics, giving it an upside of nearly 40%. As the smallest company of the group, NeoPhotonics would seem to have the most to gain from a spike in demand, and after already beating estimates four quarters in a row, the upgrade bodes well for the company's growth. NeoPhotonics has historically been a volatile stock, but Needham makes a compelling case. While the triple-digit P/E  scare away some investors, the company's long-term prospects look strong.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Infinera. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.