Madison Investments, an investment advisor, released its fourth-quarter 2025 investor letter for “Madison Small Cap Fund”. A copy of the letter can be downloaded here. The fourth quarter was challenging for the fund and continued to underperform its benchmark, the Russell 2000 Index. The fund (Class I) returned -0.4%, lagging the benchmark’s 2.2% return. Sector allocation negatively impacted the Fund’s performance this quarter, with healthcare being the weakest sector. The Fund remains optimistic that the speculative market is losing momentum, but cautious, given the saying “markets can stay irrational longer than you can stay solvent”. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.
In its fourth-quarter 2025 investor letter, Madison Small Cap Fund highlighted stocks like Ciena Corporation (NYSE:CIEN). Ciena Corporation (NYSE:CIEN) is a leading network technology company that provides hardware, software, and services for various network operators. On March 13, 2026, Ciena Corporation (NYSE:CIEN) stock closed at $337.38 per share. One-month return of Ciena Corporation (NYSE:CIEN) was 11.01%, and its shares gained 413.67% over the past 52 weeks. Ciena Corporation (NYSE:CIEN) has a market capitalization of $47.73 billion.
Madison Small Cap Fund stated the following regarding Ciena Corporation (NYSE:CIEN) in its fourth quarter 2025 investor letter:
“Finally, we should discuss a standout performer in our Information Technology stocks, Ciena Corporation (NYSE:CIEN). Ciena is a legacy telecommunication equipment company with leading technology in optical networking. Optical networking gear allows data to be transmitted through fiber optic cables. Historically, the company sold equipment to the likes of Verizon, ATT, Deutsche Telecom and other global service providers. Over the past several years, as companies like Meta, Microsoft, AWS (Amazon Web Services), and Netflix built massive data centers to deliver their own content, they began to build networks similar to the legacy service providers which required Ciena’s equipment. This “cloud provider” business has grown now to over 50% of Ciena’s revenue mix. Meta has been working closely with CIEN to develop technology for their massive data center buildout. They’ve agreed that CIEN can market this technology to the other data center players. This represents significant incremental opportunity for CIEN, and as the market recognized this, the stock has been rewarded with a significant premium multiple that’s elevated the market cap to almost $35 billion, forcing us to sell this long-time investment holding.
After its June quarter report and strong outlook, long-time portfolio holding Ciena was anointed as an AI capital spending beneficiary. With a market cap well over $30b and a very full valuation 44x 2026 price/earnings (P/E), we’ve decided to exit this position, as we believe better opportunities lie elsewhere. We’ve owned CIEN in various position sizes since 2010, but feel the market cap is now far too large for a small cap portfolio, even though fundamentals appear exceptional.”
Ciena Corporation (NYSE:CIEN) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 71 hedge fund portfolios held Ciena Corporation (NYSE:CIEN) at the end of the fourth quarter, compared to 70 in the previous quarter. Ciena Corporation (NYSE:CIEN) delivered revenue of $1.43 billion in the first quarter of fiscal 2026, its highest ever and at the top end of the guidance, reflecting strong execution across the business. While we acknowledge the risk and potential of Ciena Corporation (NYSE:CIEN) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Ciena Corporation (NYSE:CIEN) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Ciena Corporation (NYSE:CIEN) and shared a list of best multibagger stocks to invest in according to billionaires. In addition, please check out our hedge fund investor letters Q4 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.
