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Buy These 2 High-Flying AI-Led Photonics Stocks With More Room to Grow
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Key Takeaways
CRDO sees AEC demand, silicon photonics and hyperscaler traction driving fiscal 2027 growth.
LITE expects higher revenues, 1.6T transceiver ramp and internal CW laser integration to boost results.
CRDO and LITE both have analyst price targets implying notable upside from recent closing prices.
Optical and photonics products are in tremendous demand for serving global cloud and artificial intelligence (AI)/machine learning (ML) infrastructure. They are the latest bestsellers in the AI infrastructure space.
Large AI models require millions of graphical processing units (GPUs) working in tandem. As a result, the ecosystem witnesses massive growth in data throughput (as high as 400 Gbps and 800 Gbps). The traditional copper wiring is unable to carry these extremely high-speed data packets properly, as it generates excessive heat slowing down the entire AI compute cluster.
The photonics technology solves this problem transmitting data at the speed of light through a fiber optic network. Photonics enables high-speed, low-latency, and energy-efficient data transfer without overheating.
Here, we recommend investors buy these two photonics developers with a favorable Zacks Rank that are flying high year to date. Industry-leading products of these companies and the unstoppable growth of AI-powered data centers make these stocks attractive investment opportunities for the long term.
The chart below shows the price performance of our two picks year to date.
Image Source: Zacks Investment Research
Credo Technology Group Holding Ltd.
Credo Technology is a provider of high-performance serial connectivity solutions for the hyperscale datacenter, 5G carrier, enterprise networking, artificial intelligence and high-performance computing markets.
CRDO’s outlook is supported by widening AEC adoption, rising hyperscaler and Neo cloud traction, and a larger optical portfolio that now includes silicon photonics PIC technology following the DustPhotonics acquisition. AECs remain the primary growth engine as they play an increasingly critical role in AI-driven networking deployments.
ZF Optics is moving from initial ramp to a broader fiscal 2027 revenue contributor. The acquisition of Dust Photonics strengthens CRDO’s high-speed optical connectivity portfolio with silicon photonics PIC technology.
The deal adds advanced technology, including 800G and 1.6T solutions, and would aid in developing upcoming 3.2T solutions. CRDO projects more than $600 million in optical revenues, with ZeroFlap optics, silicon photonics PICs and optical DSPs each contributing more than $100 million in fiscal 2027.
Strong Outlook
For the first quarter of fiscal 2027, Credo expects revenues of $465-$475 million. Non-GAAP gross margin is projected between 67% and 69%, while non-GAAP operating expenses are expected in the range of $86-$90 million.
For fiscal 2027, management expects more than 80% year-over-year revenue growth. The company anticipates non-GAAP gross margin to remain broadly consistent with fiscal 2026 levels and non-GAAP operating expenses to rise approximately 50%, well below the expected revenue growth rate.
Four hyperscalers each contributed 10% or more of total revenues in the last reported quarter, with the top three customers representing 34%, 27% and 16% of revenues. Beyond the traditional hyperscalers, management is also seeing increasing demand from emerging Neocloud providers. Credo continues to expect that three to four customers will account for more than 10% of revenues in the upcoming quarters.
Solid Estimate Revisions
For fiscal 2027 (ending April 2027), the Zacks Consensus Estimate currently shows revenues of $2.35 billion, suggesting an improvement of 75.8% year over year and earnings per share of $5.98, indicating an increase of 72.8% year over year. The Zacks Consensus Estimate for the current year has improved 7% in the last 60 days.
For fiscal 2028, the Zacks Consensus Estimate currently shows revenues of $3.46 billion, suggesting an improvement of 47.2% year over year and earnings per share of $8.58, indicating an increase of 43.6% year over year. The Zacks Consensus Estimate for the current year has improved 6.1% in the last 60 days.
Image Source: Zacks Investment Research
Impressive Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 19.8% from the last closing price of $237.92. The brokerage target price is currently in the range of $215-$350. This indicates a maximum upside of 47.1% and a downside of 9.6%.
Lumentum Holdings Inc.
Lumentum Holdings designs and manufactures optical and photonic technologies for high-speed telecommunications, data centers, and advanced manufacturing. LITE provides components, such as transceivers and lasers for fiber-optic networks, supporting the rapid growth of AI, cloud computing, 5G connectivity, and beyond.
LITE’s technology leadership in high-speed optical components has positioned it as an essential supplier to hyperscale customers deploying next-generation network architectures. Moreover, LITE has a strong collaboration with NVIDIA Corp. (NVDA) for developing NVDA’s silicon photonics ecosystem, especially for deploying the latter’s Spectrum-X Photonics networking switches.
Strong Outlook
For the fourth quarter of fiscal 2026, Lumentum expects revenues between $960 million and $1.01 billion. The company guided non-GAAP operating margin to 35-36% and non-GAAP earnings to $2.85-$3.05 per share, based on an effective tax rate assumption of 16.5% and approximately 102 million diluted shares.
Management said a meaningful driver of sequential growth is expected to be transceivers, with 1.6T shipments poised to ramp in the fiscal fourth quarter. LITE also expects further progress on integrating internal CW lasers into its module portfolio, with management indicating that roughly 20% of modules in the near-term mix could include its own CW lasers, alongside ongoing yield improvements and efforts to reduce scrap.
Solid Estimate Revisions
For fiscal 2027 (ending June 2027), the Zacks Consensus Estimate currently shows revenues of $5.64 billion, suggesting an improvement of 88.4% year over year and earnings per share of $18.16, indicating an increase of 121.8% year over year. The Zacks Consensus Estimate for the current year has improved 2% in the last 30 days.
Image Source: Zacks Investment Research
Huge Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 30.8% from the last closing price of $849.47. The brokerage target price is currently in the range of $800-$1,400. This indicates a maximum upside of 64.8% and a downside of 5.8%.
View the Zacks #1 Rank List
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Buy These 2 High-Flying AI-Led Photonics Stocks With More Room to Grow
Key Takeaways
Optical and photonics products are in tremendous demand for serving global cloud and artificial intelligence (AI)/machine learning (ML) infrastructure. They are the latest bestsellers in the AI infrastructure space.
Large AI models require millions of graphical processing units (GPUs) working in tandem. As a result, the ecosystem witnesses massive growth in data throughput (as high as 400 Gbps and 800 Gbps). The traditional copper wiring is unable to carry these extremely high-speed data packets properly, as it generates excessive heat slowing down the entire AI compute cluster.
The photonics technology solves this problem transmitting data at the speed of light through a fiber optic network. Photonics enables high-speed, low-latency, and energy-efficient data transfer without overheating.
Here, we recommend investors buy these two photonics developers with a favorable Zacks Rank that are flying high year to date. Industry-leading products of these companies and the unstoppable growth of AI-powered data centers make these stocks attractive investment opportunities for the long term.
The stocks are: Credo Technology Group Holding Ltd. (CRDO - Free Report) and Lumentum Holdings Inc. (LITE - Free Report) . Each of our picks carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our two picks year to date.
Image Source: Zacks Investment Research
Credo Technology Group Holding Ltd.
Credo Technology is a provider of high-performance serial connectivity solutions for the hyperscale datacenter, 5G carrier, enterprise networking, artificial intelligence and high-performance computing markets.
CRDO’s outlook is supported by widening AEC adoption, rising hyperscaler and Neo cloud traction, and a larger optical portfolio that now includes silicon photonics PIC technology following the DustPhotonics acquisition. AECs remain the primary growth engine as they play an increasingly critical role in AI-driven networking deployments.
ZF Optics is moving from initial ramp to a broader fiscal 2027 revenue contributor. The acquisition of Dust Photonics strengthens CRDO’s high-speed optical connectivity portfolio with silicon photonics PIC technology.
The deal adds advanced technology, including 800G and 1.6T solutions, and would aid in developing upcoming 3.2T solutions. CRDO projects more than $600 million in optical revenues, with ZeroFlap optics, silicon photonics PICs and optical DSPs each contributing more than $100 million in fiscal 2027.
Strong Outlook
For the first quarter of fiscal 2027, Credo expects revenues of $465-$475 million. Non-GAAP gross margin is projected between 67% and 69%, while non-GAAP operating expenses are expected in the range of $86-$90 million.
For fiscal 2027, management expects more than 80% year-over-year revenue growth. The company anticipates non-GAAP gross margin to remain broadly consistent with fiscal 2026 levels and non-GAAP operating expenses to rise approximately 50%, well below the expected revenue growth rate.
Four hyperscalers each contributed 10% or more of total revenues in the last reported quarter, with the top three customers representing 34%, 27% and 16% of revenues. Beyond the traditional hyperscalers, management is also seeing increasing demand from emerging Neocloud providers. Credo continues to expect that three to four customers will account for more than 10% of revenues in the upcoming quarters.
Solid Estimate Revisions
For fiscal 2027 (ending April 2027), the Zacks Consensus Estimate currently shows revenues of $2.35 billion, suggesting an improvement of 75.8% year over year and earnings per share of $5.98, indicating an increase of 72.8% year over year. The Zacks Consensus Estimate for the current year has improved 7% in the last 60 days.
For fiscal 2028, the Zacks Consensus Estimate currently shows revenues of $3.46 billion, suggesting an improvement of 47.2% year over year and earnings per share of $8.58, indicating an increase of 43.6% year over year. The Zacks Consensus Estimate for the current year has improved 6.1% in the last 60 days.
Image Source: Zacks Investment Research
Impressive Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 19.8% from the last closing price of $237.92. The brokerage target price is currently in the range of $215-$350. This indicates a maximum upside of 47.1% and a downside of 9.6%.
Lumentum Holdings Inc.
Lumentum Holdings designs and manufactures optical and photonic technologies for high-speed telecommunications, data centers, and advanced manufacturing. LITE provides components, such as transceivers and lasers for fiber-optic networks, supporting the rapid growth of AI, cloud computing, 5G connectivity, and beyond.
LITE’s technology leadership in high-speed optical components has positioned it as an essential supplier to hyperscale customers deploying next-generation network architectures. Moreover, LITE has a strong collaboration with NVIDIA Corp. (NVDA) for developing NVDA’s silicon photonics ecosystem, especially for deploying the latter’s Spectrum-X Photonics networking switches.
Strong Outlook
For the fourth quarter of fiscal 2026, Lumentum expects revenues between $960 million and $1.01 billion. The company guided non-GAAP operating margin to 35-36% and non-GAAP earnings to $2.85-$3.05 per share, based on an effective tax rate assumption of 16.5% and approximately 102 million diluted shares.
Management said a meaningful driver of sequential growth is expected to be transceivers, with 1.6T shipments poised to ramp in the fiscal fourth quarter. LITE also expects further progress on integrating internal CW lasers into its module portfolio, with management indicating that roughly 20% of modules in the near-term mix could include its own CW lasers, alongside ongoing yield improvements and efforts to reduce scrap.
Solid Estimate Revisions
For fiscal 2027 (ending June 2027), the Zacks Consensus Estimate currently shows revenues of $5.64 billion, suggesting an improvement of 88.4% year over year and earnings per share of $18.16, indicating an increase of 121.8% year over year. The Zacks Consensus Estimate for the current year has improved 2% in the last 30 days.
Image Source: Zacks Investment Research
Huge Price Upside Potential
The short-term average price target of brokerage firms represents an increase of 30.8% from the last closing price of $849.47. The brokerage target price is currently in the range of $800-$1,400. This indicates a maximum upside of 64.8% and a downside of 5.8%.