Ciena Corporation (CIEN) Surged Due to AI Boom

Madison Investments, an investment advisor, released its “Madison Small Cap Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The third quarter was difficult for the Small Cap Fund.  The small-cap index’s performance was broad-based. The Madison Small Cap Fund (class Y) was down 1.3% in the quarter, significantly underperforming the benchmarks. The underperformance was driven by stock selection and exacerbated by a very speculative market. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, the Madison Small Cap Fund highlighted stocks such as Ciena Corporation (NYSE: CIEN). Ciena Corporation (NYSE:CIEN) is a network technology company that offers hardware, software, and services for various network operators. The one-month return of Ciena Corporation (NYSE:CIEN) was -2.34%, and its shares gained 154.00% of their value over the last 52 weeks. On November 21, 2025, Ciena Corporation (NYSE:CIEN) stock closed at $178.26 per share, with a market capitalization of $25.2 billion.

Madison Small Cap Fund stated the following regarding Ciena Corporation (NYSE:CIEN) in its third quarter 2025 investor letter:

“Our IT holdings were up modestly in the quarter, but the Russell 2000’s tech stocks were up significantly more, at +15%. AI continues to be the dominant theme and investor appetite for these stocks drove much of the Russell 2000’s performance. Our best performing tech investment, Ciena Corporation (NYSE:CIEN), is a direct beneficiary of the capital spending boom in AI. However, our software investments underperformed due to concern about potential AI disruption. There is a broad-based fear among investors that Artificial Intelligence could pose an existential threat to software business models. This has led to broad based multiple compression in the software universe across the market cap spectrum. Our view is that these fears are vastly overblown. Businesses depend on application software to run mission critical operations. The notion that AI will replace systems of record like Enterprise Resources Planning (ERP) with AI agents is, in our opinion, a hallucination. We use the term hallucination rather facetiously as that seems to be the term used to describe errors made by AI output. It turns out AI hallucinates quite a lot. By some estimates about 60% of the answers AI gives to prompts turn out incorrect. And, according to a recent study by MIT, 95% of recent AI enterprise projects are failing. This is not the recipe for a technology that is about to replace critical software applications that work.”

In another article, we covered Ciena Corporation (NYSE:CIEN) and shared Aristotle Capital Small/Mid Cap Equity Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.