Ciena (CIEN) shares vaulted nearly 20 percent in trading Thursday after the company released earnings that surprised analyst expectations and the company raised its earnings guidance for the year. This came after investors had sold off Ciena shares over the previous week on concerns about infrastructure spending at AT&T.

Ciena reported a loss of $10.2 million, or 10 cents a share, during the second quarter of 2014. But that's a sharp reduction from the from $27.1 million, or 27 cents a share, it lost in the year-ago period. Excluding special charges, Ciena earned 17 cents a share. Consensus estimates were for earnings of 13 cents per share after special charges were substracted.

This morning Ciena shares were relatively flat, trading at $22. The stock has had a volatile week, trading in a range of $18-$23. Earlier in the week, industry chatter had increased about a freeze in capital spending (capex) at AT&T (T), which would affect most of the large networking equipment suppliers to AT&T, including Ciena. Analysts said Ciena's volatile swing was a combination of irrational investor fears of AT&T followed by a surprising earnings release.

It's clear now that investor concern about AT&T was overdone. What most impressed investors was the growth outlook. Revenues rose to $560 million from $508 million in the second quarter of 2013. Ciena now estimates it will report revenue in a range of $585 million to $615 million for the third quarter. Analysts have projected 23 cents a share, excluding one-time items, on revenue of $585 million for the quarter.

“Ciena delivered exceptionally strong results in an environment where investors were worried about AT&T capex,” wrote MKM Partners analyst Michael Genovese in a research note issued this morning.

Genovese said that Ciena allayed investors fears on the conference call and discussions with analysts following the results. “Ciena appears to be very comfortable with its AT&T exposure in 2HFY14,” wrote Genovese. “Management told us that if AT&T is less than 20% of revenues in 2HFY14, it will only be because other customers and regions are growing even faster.”

Some of the trends that analysts are watching at Ciena including upgrades to 40G and 100G coherent and packet optical technology. Sales in packet optical segment increased 22% annually.

“The trends towards 100G, metro upgrades, and adoption of OTN (Optical Transport Network) architectures aid Ciena,” wrote Simon Leopold, managing director with Raymond James. “Furthermore, expansion to new applications with tier 1 customers beyond traditional optical transport could provide prospects for Ciena.”

To keep investors upbeat, Ciena will have to prove it can grow outside its traditional core of large service providers, by selling into large-scale datacenters known as “Web 2.0.” The company has been saying there is the potential for new growth in the large datacenter market.

The company pointed out that revenue from its non-telecom customer base increased to 30 percent of sales up from 25 percent in the year ago quarter, driven by strength from Web 2.0 companies. It said that two out of the five largest Web operators purchase gear directly from Ciena, according to MKM's Genovese.

Analysts point out that Ciena will have to continue this trend, with the potential for slowing growth in the telecom segment.

“Although these customers offer prospects, the dominant portion of Ciena's business faces headwinds,” wrote Leopold. “Revenue in the U.S., outside AT&T, declined 6% sequentially and despite management's commentary for accelerated strength in the back half of the year we see risk from lower Verizon spending and a potential pause by AT&T to align with its unseasonal capex expectations.”