Optical networking company Lumentum Holdings (LITE) is scheduled to join the S&P 500 index ($SPX) on March 23, before the market opens. As quarterly rebalancing like this leads to temporary buying and selling, Lumentum stock gained 14.73% intraday on March 9, after the news broke on March 6.
The stock has skyrocketed, making it an artificial intelligence (AI) supply chain leader. The company’s optical network equipment is in high demand, with a significant increase in stock over the past year.
This can also be seen in Lumentum’s recent landing of a multi-year strategic agreement with chip industry leader NVIDIA Corporation (NVDA), which includes a multi-billion dollar purchase commitment and future access rights to advanced laser components. NVDA will invest $2 billion in Lumentum to fund R&D, expand future capacity, and support operations as it expands US-based manufacturing at the new facility.
Therefore, as Lumentum faces a thirst, we take a deeper look at the company at this stage…
Lumentum Holdings Inc. is a leading designer and manufacturer of optical and photonic products that enable optical networking, laser applications, 3D sensing, and advanced manufacturing worldwide. Headquartered in San Jose, California, Lumentum drives innovation in cloud infrastructure and photonics. The company has a market capitalization of $45.75 billion.
Lumentum stock has skyrocketed over the past year, on the back of explosive demand for its optical and photonic components in AI infrastructure and data centers. Over the last 52 weeks, the stock has grown 976.83%, while it has risen 81.28% year-to-date (YTD). Just for comparison, the S&P 500 Index is up 21.57% over the past 52 weeks and down slightly YTD. The stock hit a 52-week high of $783.80 on March 2, but is down 14.3% from that level.
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A significant increase in the stock price has also increased the value of Lumentum. On a previously adjusted basis, the price-to-earnings ratio of 88.44x is significantly higher than the industry average of 21.46x.
For the second quarter of fiscal 2026 (the quarter ended Dec. 27), Lumentum’s net revenue rose 65.5% year-over-year (YOY) to $665.50 million, which was higher than the $653.40 million that Wall Street analysts had expected.
Non-GAAP gross margin increased to 42.5% from 32.3%, and non-GAAP operating margin increased by 1,730 basis points to 25.2%. Non-GAAP EPS rose significantly to $1.67, beating the $1.41 that analysts had expected.
Lumentum’s leading guidance assumes YOY revenue growth of more than 85%, although the company is only in the early stages for optical circuit switches (OCS) and co-packaged optics (CPO). OCS is already running a backlog of more than $400 million and has received orders of several hundred million dollars in CPO.
Wall Street analysts expect the company’s EPS to rise by 706.7% YOY to $1.82 for 3 FY2026. For fiscal year 2026, EPS is projected to rise significantly to $5.90, a 128.6% growth to $13.49 in the next fiscal year.
Following NVDA’s commitment to buy Lumentum for high-power lasers, analysts at Needham raised their price target on the stock to $850 from $550, while maintaining a “buy” rating. According to Needham analysts, the purchase commitment could boost the chip giant’s range of multimillion-dollar orders.
Citing insights from investor meetings with CEO Michael Hurlston and VP investor relations Kathy Tha, Stifel analysts maintained a “buy” rating on the stock and raised their price target to $800 from $480. The company noted that Lumentum’s EML lasers were recently qualified by Fabrinet, and that NVDA’s recent performance in the networking segment signals strong mid-term growth potential for Lumentum.
Barclays analyst Tom O’Malley maintained an “equal weight” rating while significantly raising his price target to $750 from $475, indicating renewed confidence in the company’s stock and future prospects. Last month, Mizuho analyst Vijay Rakesh reiterated an “outperform” rating for Lumentum stock and raised his price target to $645 from $525.
Lumentum has become a household name on Wall Street, with analysts giving it an overall consensus “Strong Buy” rating. Out of 20 analysts that have rated the stock, a majority of 14 analysts have given it a “Strong Buy” rating, two analysts have rated it a “Neutral Buy”, while four analysts choose a middle path with a “Hold” rating. Already surpassing the consensus price target of $670.94, LITE could gain 33.93% from its high street price target of $900.
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As of the date of publication, Anushka Dutta had no position (either directly or indirectly) in any of the secrets mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
