Viavi Solutions (VIAV) caught investors’ attention after reporting third quarter results that topped analyst expectations, with strong contributions from data center and aerospace and defense customers, alongside upbeat guidance for the coming quarter.

The earnings beat and guidance have gone hand in hand with sharp share price momentum, with a 49.99% 1 month share price return, 116.22% 3 month share price return and a very large 1 year total shareholder return signaling a strong upswing in sentiment.

If Viavi’s run has you looking at other potential beneficiaries of AI infrastructure demand, this could be a good moment to scan 37 AI infrastructure stocks

With Viavi’s shares up sharply and a price target of US$64.43 sitting above the last close of US$55.33, the key question now is whether you are looking at an undervalued AI infrastructure play or a stock where the market has already priced in future growth.

Most Popular Narrative: 36.9% Overvalued

Against the latest close of $55.33, the most widely followed narrative pegs Viavi’s fair value at $40.43, so the story hinges on how future growth and margins play out.

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.

Want to see what kind of revenue trajectory and margin profile need to line up with that data center story? The narrative leans on ambitious growth, rising profitability and a richer future earnings multiple. Curious which assumptions really push the fair value well below today’s price? The full breakdown lays those numbers out side by side.

Result: Fair Value of $40.43 (OVERVALUED)

However, there is still the risk that wireless and service provider spending stays subdued or that recent acquisitions prove harder to integrate than analysts currently assume.

Another View: What the P/S Ratio Is Signaling

The narrative-based fair value of $40.43 suggests Viavi looks 36.9% overvalued against the current $55.33 share price. On the other hand, its 9.5x P/S is close to the peer average of 10.1x and below a 10.8x fair ratio, while well above the wider US Communications industry at 2.4x. That mix of signals raises a simple question: is the real risk that expectations are too high, or that the market is already comfortable paying up for this growth story?

Next Steps

With the narratives split between upside potential and downside risk, this is a good time to review the numbers yourself and stress test the story. To see both sides laid out clearly, review the 1 key reward and 3 important warning signs

Looking for more investment ideas?

If Viavi has sharpened your focus, do not stop here. Use this momentum to compare other opportunities so you are not leaving potential ideas on the table.

• Spot potential bargains quickly by scanning 51 high quality undervalued stocks that combine quality with prices the market may be overlooking.
• Prioritize resilience by checking out 70 resilient stocks with low risk scores that score strongly on financial strength and earnings stability.
• Hunt for future standouts by reviewing the screener containing 25 high quality undiscovered gems that have solid fundamentals but limited market attention so far.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.