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Why Harmonic Stock Is Skyrocketing Today

What happened

Shares of Harmonic (HLIT 9.44%) are seeing huge gains in Wednesday’s trading. The telecommunications equipment company’s stock was up roughly 9.5% in the daily session as of 11:40 a.m. ET today following encouraging news from one of its key customers. 

Charter Communications (CHTR -11.53%) laid out its capital expenditure plans for 2023 yesterday, outlining a spending plan that has in turn prompted investors becoming increasingly bullish on Harmonic stock. The communications software-and-hardware maker provides multiple technologies to Charter communications, and news of the telecom company’s massive capital-expenditures plans bodes well for Harmonic’s sales outlook in the near future. 

So what

Charter held its annual investor day presentation after the market closed on Dec. 13, laying out plans that appear to be good news for Harmonic. Charter stated that it plans to spend $5.5 billion on network evolution initiatives in 2023 — a large spending outlay will hurt the company’s profitability in the near term. The company also plans to make additional upgrades in 2024 and 2025.

While the news is causing Charter’s share price to plummet, it’s proving to be a major bullish catalyst for Harmonic. Charter has been using Harmonic’s technologies for virtualizing access to cable networks, accessing and distributing high-definition video content, broadband virtualization, and other services — and investors are betting that the big capex push will translate to new sales for the smaller company.

Now what

Despite the otherwise challenging backdrop for growth stocks in 2022, Harmonic stock is now up roughly 24% across this year’s trading. 

Harmonic is a small-cap company with a market capitalization of roughly $1.5 billion, and it’s not surprising to see the communications hardware provider get a significant valuation bump on the heels of Charter’s big capex news. On the other hand, there’s still some uncertainty as to just how much of a sales boost Charter’s network-upgrade initiatives will provide for Harmonic. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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