We are initiating coverage of Ribbon Communications Inc. witha Buy rating and a $6.50 12-month price target. The North American networking infrastructure market is growing rapidly, propelled by 5G, Internet of Things (IoT), next-generation Optical IP, and bandwidth demands across cloud, edge, and backbone networks. Ribbon is driving significant growth through modernizing voice communications for Tier One service providers like Verizon, expanding into diversified segments including enterprise, Federal defense, and rural broadband, and boosted by programs like Broadband Equity Access and Deployment (BEAD). The company enhances revenue by cross-selling integrated Cloud & Edge and IP Optical solutions, leveraging its broad customer base and strategic partnerships.

5G, IoT, and Low Latency Driving North American Cloud and Edge Growth. The North American digital infrastructure market is poised for significant expansion, with the cloud computing market alone valued at $293 billion in 2024 and expected to reach $875 billion by 2030, according to industry researcher Grand View Research. This growth is mirrored in the North American Cloud and Edge market, driven by increased demand for cloud communications (projected 10-15% CAGR) and particularly rapid growth in edge computing (projected 20-30% CAGR). Growth is fueled by the need for low-latency processing for IoT, 5G deployments, and smart cities, with key adoption in IT, telecom, healthcare, banking, financial services, and insurance (BFSI), and gaming, alongside the emerging trend of micro data centers. Complementing this, the North American Optical Networks market, valued at $9.0 billion in 2025 and expected to grow at a 5-8% CAGR, is essential for 5G backhaul and data center interconnects, propelled by rising bandwidth demands from video streaming, cloud computing, and data-intensive applications, alongside fiber densification, government subsidies, globalization, and technological advancements.

Modernization of voice communication remains a significant contributor to growth. Ribbon Communication's engagement with U.S. Tier One Service Providers, particularly focused on network modernization, remains a significant growth engine. Exemplified by the Verizon Voice Network Modernization Project, these initiatives led to a 21% quarter over-quarter network modernization sales growth for Ribbon in Q4 2024. The Verizon relationship is a major revenue driver, accounting for 17% of Ribbon's Q4 2024 revenue and seeing an impressive 80% sales growth in the second half of 2024, with the project alone expected to generate over $300 million over three years by replacing legacy Time Division Multiplexing (TDM) systems with next-gen cloud-based voice platforms. This growth vector is characterized by ongoing, multi-year projects. Importantly, Ribbon is expanding its network modernization sales beyond Verizon to other U.S. service providers, diversifying its revenue streams while leveraging its expertise in voice infrastructure transformation and cloud-native solutions. These actions position it well for future opportunities as more carriers undertake similar transitions.

Ribbon fuels growth through enterprise, government, and rural broadband. Beyond its core U.S. Tier One Service Provider business, Ribbon is executing a diversified growth strategy targeting federal defense agencies, enterprise customers, and rural broadband initiatives, alongside contributions from Europe and India. Enterprise is a significant segment, accounting for 41% of revenue with recent wins in financial services, while U.S. federal defense agencies have become a primary revenue driver due to Ribbon's strategic focus on secure communications for critical infrastructure. Rural broadband, boosted by the $42.45 billion BEAD program, presents substantial opportunities for Ribbon's IP optical and integrated solutions to support fiber-to-the-home deployments in underserved areas, building on its existing presence and contributing to North American IP Optical revenue.This multi-faceted approach, coupled with a 5% year-over-year sales rise and a 1.1x book to-bill ratio at the end of 2024, positions Ribbon for continued expansion.

Integrated Solutions and Strategic Partnerships fuel Ribbon's cross-selling initiatives. Ribbon effectively leverages its extensive global customer base of over 1,000 service providers, enterprises, and government agencies to drive growth through cross-selling its Cloud & Edge and IP Optical Networks portfolios. For service providers, this involves integrating IP routing with voice transformation products to encourage broader portfolio adoption, while for enterprises, it means bundling hardware and software solutions including unified communications and secure real-time communications to maximize revenue per account and reduce acquisition costs.

RBBN shares remain undervalued, we believe. Shares are currently trading at 11-12x our FY26 non-GAAP EPS estimate of $0.37, versus the peer average of ~23x (see Table on page15). Our $6.50 price target assumes a full valuation P/E multiple of ~17-18x our FY26 estimate, which is still below the current peer group average forward P/E multiple.