Bull of the Day: Lumentum (LITE)
Lumentum (LITE) delivered a stellar beat-and-raise December quarter last week that has estimates soaring.
Non-GAAP earnings of $1.67 per share beat the Zacks Consensus Estimate by 18.68%, and were up nearly 300% from the year-ago quarter.
Non-GAAP revenues of $665.5 million, which beat the consensus mark by 1.85%, increased 24.7% on a sequential basis and 65.5% on a year-over-year basis.
The growth showcases the strength of the company’s plans for both optical components and systems in a world where NVIDIA (NVDA) is building next-gen GPU rack-scale datacenter architectures based on silicon photonics connectivity, switching, and networking.
Product-wise, revenues from the Components segment contributed 66.7% to total revenues in the fiscal second quarter. The figure increased 68.3% year over year to $443.7 million. System revenues contributed 33.3% to total revenues. The figure increased 60.1% year over year to $221.8 million.
LITE Q3 2026 Guidance Ignites Estimates
For Q3 fiscal 2026 (ends March), LITE expects non-GAAP revenues between $780 and $830 million vs a prior consensus closer to $700 million. The company expects non-GAAP operating margin in the range of 30% to 31%, vs expectations of 22%, and non-GAAP diluted earnings between $2.15 and $2.35 per share, vs a prior consensus under $1.60.
And if any investor or analyst was wondering if this blistering pace was going to slow down any time soon, management said this during the conference call…
“Our forward guidance calls for over 85% year-over-year revenue growth, yet we are only at the starting line for two substantial opportunities: optical circuit switches (OCS) and co-packaged optics (CPO).”
And analysts are already reflecting this optimism in Q4 FY’26 (ends June) with projected growth of 87.5% to $900 million.
The full-year 2026 sales consensus moved to $2.9 billion, representing over 76% annual growth. And FY’27 is already projected to come in near $4.7 billion, for a 61.5% advance.
As you would expect, these sales ramps, combined with improving margins, are driving the bottom line estimates higher for both this year and next.
A month ago, the FY26 EPS consensus was at $5.67 and FY27 at $8.29. Today they stand at $7.63 and $14.11, representing growth of 270% and 85%, respectively.
How NVIDIA Ignited Demand for Optical Interconnect
I’ll admit: I was late to the optical party. And I should not have been since I follow NVIDIA so closely. Lessons learned. In December, I profiled Lumentum optical peer Coherent (COHR). Here’s what I wrote…
We know NVIDIA is a big customer of Credo Technology (CRDO) AECs because CEO Jensen Huang is a big fan of copper for connecting GPUs within rack-scale architectures and Credo has repeatedly showcased its AECs in live demonstrations at the NVIDIA GPU Tech Conference (GTC). These demos feature Credo’s AECs connecting servers and switches directly to NVIDIA H100 GPUs to create disaggregated, rack-scale GPU clusters.
But at GTC in March [2025], Jensen announced a collaboration with a purely optical player, Coherent.
One big driver of investor enthusiasm that helped drive COHR shares from below $70 to over $190 this year was their collaboration with NVIDIA announced at GTC in March.
Coherent and NVIDIA will develop silicon photonics networking switches using co-packaged optics (CPO). This ecosystem will allow AI factories to connect millions of GPUs.
NVIDIA still uses copper wiring within Blackwell NVL72 rack-scale systems to connect GPUs to each other, but to “scale out” across the datacenter Jensen Huang recognized the power and speed of optical solutions to connect many racks together for the lowest latency.
Thus NVIDIA has several connectivity and networking systems that use optical and photonics solutions and they can be categorized into two main areas: Interconnect Products, including Infiniband and Ethernet protocols, and the upcoming Co-Packaged Optics, like Spectrum-X Photonics Switches.
LITE and TSMC: Co-Design for the Win
Lumentum and Taiwan Semiconductor (TSM), aka TSMC, aka THE advanced chip foundry, are two of the most critical “ingredient” partners in NVIDIA’s move toward Co-Packaged Optics (CPO).
Their collaboration solves a massive physics problem: as AI clusters grow to millions of GPUs, traditional copper wiring and pluggable transceivers consume too much power and generate too much heat.
By moving optics into the chip package, they reduce power consumption by roughly 3.5x and increase signal integrity significantly. Here is how they work together to build this for NVIDIA’s next-gen platforms like Quantum-X and Spectrum-X.
But TSMC has to provide the “packaging” that allows electricity and light to live on the same chip. A major challenge with CPO is that lasers are heat-sensitive. If you put a laser directly next to a hot GPU or Switch ASIC, it will fail.
TSMC’s Compact Universal Photonic Engine (COUPE) is a 3D packaging process. It allows NVIDIA to stack the Electrical IC (the brain) directly on top of the Photonic IC (the eyes).
Me and the Analysts: Won’t Get Fooled Again
After I understood this integrated circuit of interdependency, I finally bought Lumentum shares in January at $350 on the pullback from $400. Most analysts were still too timid with estimates and the high price targets were only calling for $450. Heck, Morgan Stanley thought $350 was fair!
After earnings, LITE could only manage to kiss $500 and retreat. So I sold some of my position at $485, thinking it may have gone too far, too fast.
In retrospect, I was foolish to ever doubt the risk appetite for Lumentum (LITE) based solely on the weak reception for its stellar report that day.
And it should have been obvious as soon as the next day when everything was falling out of bed on Feb 5 because LITE tested the silly post-earnings low at $426 and reversed higher with a big fat engulfing candle to close above $500!
Then Friday, as the upgrades and delayed reactions poured in, she gaps up to $540 and closes above $550.
They almost got me again with two kisses of $600 on Monday and Wednesday this week, and then another about-face. But I’m not falling for it this time.
I’m holding my shares for the full realization of what NVIDIA (NVDA) is building for the next five years, where optical components are required at multiple stages and optical providers like LITE and Coherent (COHR) can be involved at different stages of design and fabrication with CPO.
Meanwhile, here’s the Street herd gathering around $550 with their PTs…
Rosenblatt $580
JP Morgan $565
Citi $560
Needam $550
Susquehanna $550
B. Riley $526
Mizuho $525
BofA $520
Stifel $480
Barclays $475 (Equal-Weight)
UBS $455 (from $215! and stays at Neutral)
See ya next quarter when Lumentum surprises again and they raise their PTs to $650.
Disclosure: I own NVDA, TSM, CRDO, and LITE shares for the Zacks TAZR Trader portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the TAZR Trader portfolio.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They include
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.
See Our Newest 5 Stocks Set to Double Picks >>
Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
Coherent Corp. (COHR) : Free Stock Analysis Report
Credo Technology Group Holding Ltd. (CRDO) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Discover more from stock updates now
Subscribe to get the latest posts sent to your email.
