What Makes Lumentum Holdings (LITE) a Good investment?

Baron Funds, an investment management company, released its “Baron Technology Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. US equities rallied in the third quarter following the previous quarter. In the third quarter, the fund returned 5.89% (Institutional Shares) but underperformed the MSCI ACWI Information Technology Index’s (the Benchmark) 12.76% return, Invesco QQQ Trust’s (the QQQ) 8.94% return, and the S&P 500 index’s 8.12% return. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, Baron Technology Fund highlighted stocks such as Lumentum Holdings Inc. (NASDAQ:LITE). Lumentum Holdings Inc. (NASDAQ:LITE) offers optical and photonic products that operate through Cloud & Networking and Industrial Tech segments. The one-month return of Lumentum Holdings Inc. (NASDAQ:LITE) was 65.77%, and its shares gained 199.93% of their value over the last 52 weeks. On November 10, 2025, Lumentum Holdings Inc. (NASDAQ:LITE) stock closed at $259.89 per share, with a market capitalization of $18.429 billion.

Baron Technology Fund stated the following regarding Lumentum Holdings Inc. (NASDAQ:LITE) in its third quarter 2025 investor letter:

"We initiated a position in Lumentum Holdings Inc. (NASDAQ:LITE) this quarter. The company is a leading photonics and optical components company specializing in lasers (light emitters) used for optical communication within data centers. As data centers become larger and more communication-intensive, the industry is transitioning toward newer classes of laser technology, an area where Lumentum holds a leading market share. The supply of these advanced lasers remains structurally constrained, positioning Lumentum to exercise pricing power and gain share in the photonics industry. Moreover, Lumentum’s leadership in next-generation optical technologies, such as co-packaged optics (optical components integrated directly with silicon chips) and optical circuit switching (enabling direct optical routing without electrical conversion), positions the company well to capture emerging markets that could redefine data center architectures. These technologies enhance performance, reduce power losses, and expand the TAM for optical solutions. We believe Lumentum is exceptionally well positioned to benefit from both the secular growth of traditional optical communication and the emergence of new markets that open massive incremental opportunities in the buildout of the AI infrastructure ecosystem."

Lumentum Holdings Inc. (NASDAQ:LITE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 59 hedge fund portfolios held Lumentum Holdings Inc. (NASDAQ:LITE) at the end of the second quarter, up from 50 in the previous quarter.  In the fiscal first quarter of 2026, Lumentum Holdings Inc. (NASDAQ:LITE) reported revenue of $533.8 million representing an increase of more than 58% year-over-year. While we acknowledge the potential of Lumentum Holdings Inc. (NASDAQ:LITE) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Lumentum Holdings Inc. (NASDAQ:LITE) and shared the list of stocks soaring past expectations. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.