While many growth investors buy into the promise of artificial intelligence (AI) through mega-cap players such as Nvidia, Microsoft and Meta, companies whose products are necessary for building the supporting infrastructure are often overlooked.
One of these is Corning (NYSE: GLW), the long-established $38 billion US speciality glass and ceramics company. It is often dismissed as an industrial group, but investors have slowly been recognising that the company is an emerging technology stock playing a vital role in AI.
Corning stock rallies ahead
Earlier this month, the group gave an upbeat report on current trading; it formally announces its second-quarter results this week. Turnover in the second quarter is now expected to reach $3.6 billion, compared with previous expectations of $3.4 billion.
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Corning’s markets are buoyant enough for management to anticipate continuing sales growth throughout the year. Core earnings per share in the quarter should show a return to year-on-year growth. They are likely to meet or exceed the top end of management’s guidance of between $0.42 and $0.46. The company sees itself in the early stages of a three-year programme that will add annualised sales of $3 billion to the current expected total of $12.6 billion. So what is driving this outperformance, which the company says is sustainable?
Longstanding CEO Wendell Weeks says the accelerating performance is down to AI. Corning is also seeing encouraging trends in other areas such as optical communications and display screens – it makes the glass on iPhones and many other mobile phone brands, for example, as well as for car dashboards. But the game-changing action is in data centres, which is a key foundation of the AI market.
For AI to work, you need to store, memorise and harvest vast amounts of data to be able to generate the responses that systems and people need. Data centres house hundreds of thousands of computers, or “servers” with very fast microchips. These are the superfast chips that have made Nvidia top of its market.
You need all these chips working together like a vast brain – they call this a “neural network”, like a super-computer sifting and recognising data patterns to solve problems and questions on an unimaginable scale.
We know all about the chips because Nvidia is never out of the news. But what about the connections between all those super-fast processors? You cannot have a “neural network” without top-quality cabling that connects them. We hear much less about cabling, but that is where Corning comes in. In the 1970s, Corning’s team was behind workable fibre-optic cable, providing a huge advance in data-carrying capacity compared with copper wire. And today Corning is the maker of much of the physical fibre cable in the US.
In short, data centres and generative AI need fibre-optic cabling and Corning is a leader. The “neural networks” for generative AI need about 10 times more fibre connections than a traditional data centre.
Clearly, this implies a jump in sales volumes for Corning but also creates value-added products to fit all those extra connections into the same spaces. It’s been inventing new fibres, cables, connectors and solutions. These help customers cut installation costs and project time frames. It also reduces their carbon footprints.
As Wendell Weeks put it recently, Corning is “the connectivity that brings the hardware to life”. That is why Corning should increasingly be appreciated as a company tied to the growth of AI. Corning is part of a secular shift in the technology sector, and as the word spreads, the shares should gain.
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