VIAVI Solutions (VIAV): A High-Margin Turnaround Story in Telecommunications Infrastructure

VIAVI Solutions (NASDAQ: VIAV) has emerged as a compelling case study in operational resilience and strategic reinvention. Over the past three years, the company has navigated a volatile macroeconomic environment to deliver robust revenue growth, margin expansion, and a repositioning in high-growth markets. For investors seeking a long-term buy opportunity, VIAVI's transformation into a leader in data center and defense infrastructure offers a compelling narrative of sustainability and scalability.

Financial Turnaround: Margins and Revenue Growth

VIAVI's fiscal 2025 results underscore a dramatic turnaround. Total revenue rose 8.4% year-over-year to $1.08 billion, driven by a 10.6% increase in its Network and Service Enablement (NSE) segment and a 3.1% rise in Optical Security and Performance Products (OSP). The fourth quarter of fiscal 2025 saw even sharper growth, with revenue surging 15.3% to $290.5 million. This acceleration was fueled by surging demand in the data center ecosystem and aerospace & defense markets.

Margin expansion has been equally impressive. While GAAP gross margin dipped slightly to 57.3% in fiscal 2025, non-GAAP gross margin improved by 70 basis points to 60.1%. More strikingly, operating margins expanded from a GAAP loss of -2.3% in Q4 2024 to 5.3% in Q4 2025, with non-GAAP operating margin jumping to 14.4%. This reflects disciplined cost management, operational efficiencies, and a shift toward higher-margin products.

Strategic Positioning: Data Center and Defense Markets

VIAVI's long-term growth hinges on its strategic alignment with two of the most dynamic sectors in telecommunications: data centers and defense.

Data Center Ecosystem: The company's NSE segment, which includes network testing and monitoring solutions, is critical for hyperscale cloud providers and enterprises scaling AI infrastructure. With global data center spending projected to grow at a 10% CAGR through 2030, VIAVI's expertise in high-speed optical testing and 5G/6G infrastructure positions it to capture a significant share of this demand. The CEO highlighted “high growth” in this segment, driven by increased spending on network optimization and cloud infrastructure.

Defense and Aerospace: VIAVI's acquisition of Inertial Labs in 2024 added positioning, navigation, and timing (PNT) solutions to its portfolio, expanding its footprint in defense applications. The NSE segment's aerospace revenue grew 14.8% in Q4 2025, reflecting strong demand for secure communication systems and satellite infrastructure. With geopolitical tensions elevating defense budgets globally, VIAVI's technical capabilities in this space offer a durable growth tailwind.

Competitive Advantages and Long-Term Catalysts

VIAVI's competitive moat lies in its deep technical expertise and proprietary technologies. Its leadership in optical security (e.g., anti-counterfeiting solutions) and network assurance tools creates high switching costs for clients. Additionally, the company's R&D investments in 6G testbeds and AI-driven analytics position it to lead in next-generation infrastructure.

Long-term catalysts include:
1. 6G Infrastructure: VIAVI's partnerships in 6G testbeds could lock in early-stage contracts as telecom providers prepare for the next wave of connectivity.
2. Defense Spending: With U.S. and European defense budgets rising, VIAVI's PNT and secure communication solutions are well-positioned for adoption.
3. Cloud and AI Demand: The exponential growth in data center traffic and AI workloads will sustain demand for VIAVI's testing and monitoring tools.

Risks and Mitigants

While VIAVI's trajectory is promising, risks remain. Macroeconomic headwinds, such as interest rate volatility or supply chain disruptions, could pressure margins. However, the company's diversified revenue streams (38% from the Americas, 35% from Asia-Pacific, and 26% from EMEA) and $400 million cash balance provide resilience. Additionally, its focus on high-margin, recurring revenue models (e.g., software licenses and service contracts) enhances predictability.

Investment Thesis

VIAVI's combination of margin expansion, strategic market positioning, and long-term growth drivers makes it an attractive long-term buy. At a forward P/E of ~12x and a PEG ratio of 0.8x, the stock appears undervalued relative to its growth prospects. Investors should monitor its ability to maintain margin discipline while scaling in data center and defense markets.

For those with a 3–5 year horizon, VIAVI represents a high-conviction opportunity in the telecommunications infrastructure sector. Its turnaround is not just a short-term rebound but a structural shift toward markets with enduring demand. As the world races to build out next-generation networks and secure its digital infrastructure, VIAVI is poised to deliver outsized returns.