Lumentum Holdings (LITE Quick QuoteLITE - Free Report) shares have jumped a whopping 107.5% year to date, outperforming the Zacks Communication Components industry’s return of 61.5% and the broader Zacks Computer and Technology sector’s decline of 7.5%. This optical and photonic products provider’s impressive performance can be attributed to back-to-back quarters of impressive financial performance, favorable industry trends and strong fundamentals.

LITE’s prospects ride on strong AI demand that is driving the need for its laser chips and optical transceivers inside data centers, as well as in the interconnect and long-haul networks that bring them together. The company is emerging as a critical infrastructure provider to AI data centers and the structural supply scarcity in indium phosphide lasers positions for sustained revenue growth and margin expansion. Is the stock a buy based on these drivers? Let us find out.

Strong AI Demand to Boost LITE’s Prospects

Lumentum’s products are now deeply embedded in AI data center buildouts. The growing need for high-bandwidth and low-latency optical networking to handle increasing AI workloads bodes well for LITE. Multi-year capital expenditure and capacity commitments by hyperscalers are expected to drive Lumentum’s prospects. Cloud transceivers, optical circuit switches (OCS) and co-packaged optics (CPO) are long-term growth drivers for Lumentum. Supply constraint of indium phosphide is good for LITE’s top-line growth as the company’s production capacity is sold out through 2027 under long-term agreements. 

In the second quarter of fiscal 2026, revenues from cloud transceivers grew significantly and outperformed the legacy cloud-like run rate. The company has emerged as a leading provider of transceiver suppliers as customers transition their networks to 1.6T speeds. Cloud transceivers drove the majority of 60% year-over-year and 43% sequential growth in the first quarter of fiscal 2026’s systems revenues. The rise was driven by LITE’s expanded manufacturing capacity in Thailand. Apart from improved design execution, LITE has been successfully increasing transceiver profitability, driven by better yields and lower scrap rates. 

Lumentum has noted strong and expanding demand for OCS with an order backlog of more than $400 million, the majority of which is slated for shipment in the second half of this calendar year. The company secured an additional multi-hundred-million-dollar purchase order for its ultra-high-power lasers that support optical scale-out applications. LITE expects shipments for this incremental order in the first half of calendar 2027. Shipment of UHP chips is expected to increase in the second half of calendar 2026. The company’s expanding footprint into the broader pluggable external light source market increases the serviceable market.

Optical scale-up is expanding Lumentum’s total addressable market. Replacement of copper inside racks over time bodes well for the company’s prospects. The company expects to ship its first scale-up CPO that replaces longer copper connections is set to be launched by late calendar 2027.

LITE’s Strong Portfolio Steers Off Competition

Lumentum is riding on a strong portfolio to steer off competition from the likes of Coherent (COHR Quick QuoteCOHR - Free Report) , Ciena (CIEN Quick QuoteCIEN - Free Report) and Marvell Technology (MRVL Quick QuoteMRVL - Free Report) in the AI infrastructure space. Lumentum and Coherent are competitors in high-speed optical modules and transceivers used in data centers and optical links for AI infrastructures. Ciena is a leading provider of optical networking equipment, software and services. Marvell Technology is a competitor in optical networking for AI and data center applications.

Lumentum has outperformed Ciena, Coherent and Marvell Technology in the year-to-date period. Shares of Ciena, Coherent and Marvell Technology have soared 77.7%, 34.3% and 25.5%, respectively, over the same time frame.

LITE Stock’s Performance

Image Source: Zacks Investment Research

LITE’s Earnings Estimate Revision Shows Positive Trend

For the third quarter of fiscal 2026 (quarter ending March 2026), revenues are expected to be $780-$830 million (mid-point $805 million, indicating more than 85% year-over-year growth). Approximately two-thirds of the sequential revenue increase is expected from Components and one-third from Systems. Non-GAAP earnings are expected to be $2.15-$2.35 per share.

The Zacks Consensus Estimate for third-quarter fiscal 2026 earnings is pegged at $2.25 per share, up 45.2% over the past 60 days and indicating a mammoth rise from the 57 cents reported in the year-ago quarter. The consensus mark for third-quarter fiscal 2026 revenues is pegged at $805.39 million, suggesting a 89.41% surge from the year-ago quarter’s reported figure.

LITE Stock Trades at Premium

Lumentum shares are trading at a premium, as suggested by a Value Score of F. 

In terms of the forward 12-month price-to-sales (P/S), LITE is trading at 12.52X, higher than the broad sector and peers. While the sector is trading at 5.81X, Ciena, Coherent and Marvell trade at 9.03X, 5.7X and 8.12X, respectively.

LITE Stock’s Valuation

Image Source: Zacks Investment Research

Technically, the stock is currently trading above the 50-day and the 200-day moving averages, indicating a bullish trend.

LITE Stock Trades Above 50-Day & 200-Day SMAs

Image Source: Zacks Investment Research

Conclusion

Lumentum’s growing AI infrastructure footprint bodes well for its prospects and justifies a premium valuation. The strong prospect makes the stock a must-have for growth-oriented investors. 

LITE currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank stocks here.