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Lumentum's Transition Toward AI Networking: What's Ahead?
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Key Takeaways
Lumentum is shifting toward AI networking, driven by hyperscaler demand and optics adoption.
LITE posted record $665.5M revenues, up 65% YoY, with margins rising to 25.2%.
Strong OCS backlog and supply shortfall push capacity expansion, including a fifth fab.
Lumentum (LITE - Free Report) is harnessing AI networking growth to go beyond its traditional telecom offerings, with the demand for its products being majorly dictated by hyperscalers, data-center upgrades and a structural shift from advanced copper wires toward optics and photonics.
Lumentum is heavily dependent on the demand for cloud transceivers, optical circuit switches (OCS) and co-packaged optics (CPO) for its near-term growth story. Alongside the demand for OCS and CPO, LITE is also experiencing traction for its laser chips, laser assemblies and long-haul products.
Lumentum reported record revenues of $665.5 million, up more than 65% year over year, along with a sharp expansion in non-GAAP operating margin to 25.2% in the second quarter of fiscal 2026, implying that its business is scaling with much better profitability. A strong backlog of above $400 million in OCS is also a tailwind.
The demand for Lumentum’s networking products is outpacing supply, and that’s why LITE is currently under-shipping customer demand by approximately 25% to 30%. This reflects the scope of further capacity expansion. In the production front, Lumentum has been able to match the leading players in 1.6T technology and improve on inefficiencies.
Lumentum’s plans include heavy investment in indium phosphide fabs, front-loaded capacity increases and the addition of a fifth fab to address persistent undersupply. These provide the company with a robust runway for the long term. LITE expects its third-quarter fiscal 2026 revenues to be between $780 million and $830 million, with $805 million at the midpoint, suggesting 89% year-over-year growth with sequential improvement in operating margin projected in the range of 30-31%.
How Competitors Fare Against LITE
As optics are gaining traction among next-generation AI infrastructure, Cloud Data Centers and Scale-Up and Scale-Out Networking, companies like Broadcom (AVGO - Free Report) and Coherent Corp. (COHR - Free Report) have become Lumentum’s formidable competitors in this space.
Broadcom is a dominant player in the pluggable optics space with offerings, including PAM4 DSPs and optical transceivers. Broadcom directly competes with Lumentum across high-speed PAM4, Ethernet PHYs and optics used in hyperscale AI networks.
Coherent also offers optical components, transceivers, coherent optics and optical engines used in data centers, overlapping with Lumentum's offerings. Recent growth in AI and ML workloads has ramped up its sales of 800G transceivers and active optical cables.
LITE’s Price Performance, Valuation and Estimates
Shares of Lumentum have lost 127.1% year to date against the Communication - Components industry’s growth of 101.3%.
LITE YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Lumentum trades at a forward price-to-sales ratio of 13.07X, higher than the industry’s average of 2.97X.
LITE Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Lumentum's fiscal 2026 and 2027 earnings implies year-over-year growth of 273% and 98%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward in the past 60 days.
View the Zacks #1 Rank List
Image: Bigstock
Lumentum's Transition Toward AI Networking: What's Ahead?
Key Takeaways
Lumentum (LITE - Free Report) is harnessing AI networking growth to go beyond its traditional telecom offerings, with the demand for its products being majorly dictated by hyperscalers, data-center upgrades and a structural shift from advanced copper wires toward optics and photonics.
Lumentum is heavily dependent on the demand for cloud transceivers, optical circuit switches (OCS) and co-packaged optics (CPO) for its near-term growth story. Alongside the demand for OCS and CPO, LITE is also experiencing traction for its laser chips, laser assemblies and long-haul products.
Lumentum reported record revenues of $665.5 million, up more than 65% year over year, along with a sharp expansion in non-GAAP operating margin to 25.2% in the second quarter of fiscal 2026, implying that its business is scaling with much better profitability. A strong backlog of above $400 million in OCS is also a tailwind.
The demand for Lumentum’s networking products is outpacing supply, and that’s why LITE is currently under-shipping customer demand by approximately 25% to 30%. This reflects the scope of further capacity expansion. In the production front, Lumentum has been able to match the leading players in 1.6T technology and improve on inefficiencies.
Lumentum’s plans include heavy investment in indium phosphide fabs, front-loaded capacity increases and the addition of a fifth fab to address persistent undersupply. These provide the company with a robust runway for the long term. LITE expects its third-quarter fiscal 2026 revenues to be between $780 million and $830 million, with $805 million at the midpoint, suggesting 89% year-over-year growth with sequential improvement in operating margin projected in the range of 30-31%.
How Competitors Fare Against LITE
As optics are gaining traction among next-generation AI infrastructure, Cloud Data Centers and Scale-Up and Scale-Out Networking, companies like Broadcom (AVGO - Free Report) and Coherent Corp. (COHR - Free Report) have become Lumentum’s formidable competitors in this space.
Broadcom is a dominant player in the pluggable optics space with offerings, including PAM4 DSPs and optical transceivers. Broadcom directly competes with Lumentum across high-speed PAM4, Ethernet PHYs and optics used in hyperscale AI networks.
Coherent also offers optical components, transceivers, coherent optics and optical engines used in data centers, overlapping with Lumentum's offerings. Recent growth in AI and ML workloads has ramped up its sales of 800G transceivers and active optical cables.
LITE’s Price Performance, Valuation and Estimates
Shares of Lumentum have lost 127.1% year to date against the Communication - Components industry’s growth of 101.3%.
LITE YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Lumentum trades at a forward price-to-sales ratio of 13.07X, higher than the industry’s average of 2.97X.
LITE Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Lumentum's fiscal 2026 and 2027 earnings implies year-over-year growth of 273% and 98%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward in the past 60 days.
Image Source: Zacks Investment Research
Lumentum currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.