Company Introduction
Spun off from JDSU
Lumentum (ticker: LITE) is an optical and photonics products manufacturing company. In August 2015, JDSU split into two separate companies—Viavi Solutions and Lumentum.
Core Business
Lumentum’s products are used in end-market applications such as optical communications and commercial lasers, and also in industries such as manufacturing, inspection, and life sciences.
Lumentum manufactures and markets optical and photonic products in the Americas, Asia Pacific, Europe, the Middle East, and Africa.
Business Overview
Optical Communications and Commercial Lasers
Lumentum has two main divisions: the Optical Communications division and the Commercial Lasers division. The Optical Communications division manufactures and markets optical and photonic components, modules, and systems that enable high-speed data transmission. The Lasers division focuses on industrial laser products.
In terms of products, Lumentum offers two types of optical and photonic products: optical components for telecommunications network equipment, and commercial lasers for manufacturing, inspection, and life science laboratories.
New Business
Lumentum has also expanded into new optical applications, such as 3D sensing semiconductor lasers for consumer electronics. It generates the largest revenue from its OpComms division. OpComms’ products include a variety of components, modules, and subsystems to support customers, including carrier networks for access (local), metro (urban), long-haul, and submarine (submarine) applications.
Operating Performance
Q1 2026 result
In its Q1 2026 earnings report, Lumentum reported net income of $808.4 million. While this represents a 90% year-over-year increase, it is still approximately $12 million lower than the consensus estimate of $820.4 million. Despite recent strong profit growth, the company’s profits have declined at an annualized rate of 33.1% over the past five years.
Q2 2026 Guidance
The company issued guidance for its Q2 2026 results, projecting:
- Net revenue is expected to be between $960 million and $1.01 billion, exceeding the consensus estimate of $917.27 million.
- Non-GAAP operating margin is expected to be between 35.0% and 36.0%.
- Non-GAAP diluted earnings per share are projected to be between $2.85 and $3.05, exceeding the consensus estimate of $2.69.
Outlook
Driven by AI-driven demand for data centers, Lumentum is experiencing rapid revenue and profit growth. In the first nine months of fiscal year 2026, ending March 28, its revenue increased 72% year-over-year, slightly exceeding $2 billion. Lumentum expects second-quarter revenue to reach $985 million, meaning it will more than double the $480.7 million in the same period last year.
More importantly, Lumentum points to its high-margin data center products. This translates into robust net profit growth, with projected earnings per share for the first nine months of fiscal year 2026 to increase 4.5 times year-over-year to $5.27. Furthermore, Lumentum expects strong revenue growth to translate into healthy profit growth.
Demand Exceeds Supply
The completion of its fifth indium phosphide wafer fab directly addresses the growing demand for connectivity in artificial intelligence (AI) and hyperscale data centers, potentially becoming a significant driver of Lumentum’s optical product portfolio.
How Big is the Market?
According to market research firm Cignal AI, the optical components market is projected to grow at an annual rate of 21% by 2029, generating $30 billion in revenue by the end of the forecast period. Therefore, Lumentum’s target market is expected to experience strong growth in the coming years, which explains analysts’ expectations of stable revenue growth for the company.
Benefiting from the AI Boom
Extensive Use in AI Data Centers
Lumentum’s optical products are widely deployed in data centers to enable rapid data transfer and meet the significant growth in demand from AI workloads. Lumentum benefits from the demand for AI infrastructure and data centers because it is a supplier to Ciena, and its parent company is considered by some analysts to be an undervalued peer in the optical components field.
Why Use Lumentum’s Products?
Lumentum’s prominence is well-deserved. The company is at the heart of one of the fastest-growing parts of the AI infrastructure stack—optical networks. As AI systems grow larger and more powerful, the amount of data transferred between servers and chips is exploding.
AI is driving Lumentum’s growth
Lumentum manufactures optical and photonic devices such as lasers, transceivers, and amplifiers, widely used in cloud computing, networking, and industrial markets. Its products enable high-speed connectivity in data centers, making them highly sought after by hyperscale data center operators to reduce latency when transmitting large datasets.
Lumentum’s accelerated growth reflects increasing demand for its products. This is not surprising, as Lumentum’s optical and photonic components eliminate a key bottleneck in AI model training and inference tasks. The high-speed connectivity enabled by Lumentum’s products means that AI acceleration chips do not need to idle while waiting for data, thus reducing the time required to run workloads in the cloud.
Optical communications are the future
Because efficient data transmission within data centers may be just as important as data processing. As a leading developer of optical and photonic technologies, Lumentum uses light instead of traditional electrical connections to transmit data. In the long term, copper wire transmission will be replaced by photonic communication, thus Lumentum is poised to benefit significantly from this artificial intelligence revolution.
Nvidia’s Strategic Investment
Nvidia and Lumentum have entered into a multi-year agreement on advanced optical technologies for artificial intelligence infrastructure. This includes a multi-billion dollar procurement commitment from Nvidia, future access to laser component production capacity, and joint development of next-generation artificial intelligence systems.
Nvidia has agreed to invest $2 billion in Lumentum through a private placement, issuing 2,876,415 Series A convertible preferred shares at $695.31 per share, convertible 1:1 to common stock under certain conditions.
Lumentum plans to build a 240,000-square-foot U.S. manufacturing facility in Greensboro, North Carolina, to produce indium phosphide optical components for large-scale artificial intelligence data centers. The plan involves an investment of hundreds of millions of dollars and will retain or create over 400 manufacturing jobs.
Nvidia plans to invest $2 billion in Lumentum, along with billions more in commitments to purchase advanced optics components. Analysts believe this is related to co-packaged optics and potential profitability.
Risks
The Artificial Intelligence Bet
Lumentum has benefited from surging spending on AI infrastructure, driven by growing demand for optical connectivity. In many ways, Lumentum has successfully bet on AI infrastructure.
However, the problem is that once the market fully embraces an investment story, the expected rate of increase can exceed what the company’s actual performance can sustain. This explains why the stock price has risen far faster than the company’s actual financial growth. For example, the company’s revenue growth in the most recent quarter was “only” 90%.
At current stock price levels, investors are no longer simply expecting Lumentum to benefit from AI demand. They are betting that even if AI spending remains high for the next few years, the company will continue to operate near-perfectly. This significantly reduces the likelihood of the company disappointing.
Insider Stock Sales Worth Noting
Over the past few months, several senior executives and insiders at Lumentum have sold substantial amounts of stock, worth tens of millions of dollars. Senior executives have many legitimate reasons for selling stock, including diversification, tax planning, and pre-arranged deal plans.
However, long-term investors should at least take note when insiders reduce their holdings after a historic surge in the stock price. Why? Because insiders often understand better than anyone how much optimism the stock price has already reflected.
This doesn’t necessarily mean management believes the company’s business is weakening. In fact, the opposite could be true. But it could indicate that some insiders have a different view of the current risk-reward profile than momentum investors who aggressively chase the rally.
Capital Market Performance
Stock Price Performance
The company’s stock price has risen nearly 170% in the past six months. Over the past 12 months, the stock has risen more than 1,100%.
Market Valuation
Lumentum’s current price-to-earnings ratio of 56 is high, which is considered overvalued, but its strong earnings growth justifies this valuation. Assuming that a few years from now, this AI stock’s price-to-earnings ratio drops to 50 and earnings per share reach $28.12, its share price could potentially reach $1,406. This represents a 64% potential upside, making now a good time for investors to buy.
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