United States Communications Equipment: 3Q26 Preview – Networking Is Where It's At - Arista Reclaims #1; LITE #2 and KEYS #3 Pick

We remain broadly constructive on networking stocks, all Buy-rated, based on our multi-year AI infrastructure playbook. Specifically, we are focused on "stages 4 & 5" on adoption of scale up optics with NPO and CPO to be followed by scale-in which involves bringing optical I/O directly inside the package for chip-to-chip and chip-to-memory interconnects. Our top three Buy-rated picks are ANET, LITE, and KEYS. Our stock rankings are influenced by the impact of constrained supply, especially silicon/lasers, and impact to the overall gross margins mix. The outlook for aggregate 2026 Big Five cloud data center capex growth has increased to +93% Y/Y, up by 10% relative to June expectations largely driven by memory price inflation. Citi estimates for AWS, META, and GCP have been positively revised while the outlook for Azure was modestly lowered and OCI is unchanged. Projections for 2027 data center capex growth have all moved higher with aggregate capex spend growth increasing from > 30% Y/