Here's Why Lumentum Stock Is a Promising Portfolio Pick Right Now

Lumentum LITE is one stock in the Zacks Communication Components industry that investors should consider adding to their portfolio to benefit from its upside potential. Shares have jumped 61.8% in the past month compared with the industry’s return of 14.2% and the broader Zacks Computer and Technology sector’s appreciation of 3.8%.

Year to date, LITE shares have jumped 209.5%, outperforming peers like Coherent COHR, Ciena CIEN and Marvell Technology MRVL. While Coherent and Ciena shares have appreciated 76% and 146.1%, respectively, Marvell Technology dropped 15.6%.

Lumentum’s impressive performance can be attributed to back-to-back quarters of impressive financial performance, favorable industry trends and strong fundamentals. Let’s take a deeper look to find out the drivers.

LITE Stock Rides on Strong Portfolio

Lumentum’s prospect rides 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. LITE estimates that more than 60% of its current revenues ($533 million in the first quarter of fiscal 2026) comes from AI infrastructure and cloud, driven by strong demand from hyperscalers.

Lumentum Holdings Inc. Price and Consensus

Lumentum Holdings Inc. price-consensus-chart | Lumentum Holdings Inc. Quote

The company’s components business reported fiscal first-quarter revenues of $379 million, up 64% year over year and 18% sequentially, driven by strong demand for laser chip, laser assembly, and line subsystem product lines used in data centers, as well as for data center interconnect and long-haul applications. LITE achieved record EML laser shipments due to strong sales of 100-gig line speeds and increase in 200-gig shipments. LITE has started delivering CW lasers for 800-Gig transceiver manufacturers, which boosts its prospects.

Laser chip shipment is anticipated to remain strong due to the expected addition of roughly 40% more capacity over the next few quarters at the indium phosphide-based wafer fab. Laser chips carry a higher gross margin and hence higher shipments are expected to drive earnings. Lumentum currently expects 200-gig EMLs to account for roughly 10% of the sales mix in early calendar 2026 and become a meaningful part of the mix as the year progresses.

LITE has evolved as a leading provider of optics for scaling AI. Cloud transceivers, optical circuit switches and co-packaged optics are long-term growth drivers for the systems segment. Lumentum expects sustainable growth from cloud transceivers (flat in the first quarter of 2026) over the next four to five quarters, beginning in the second quarter of fiscal 2026. Rapid manufacturing expansion in Thailand bodes well for both cloud transceiver and optical circuit switches.

A strong portfolio is helping Lumentum steer off stiff competition from the likes of Coherent, Ciena and Marvell Technology in the AI infrastructure space. Lumentum and Coherent are competitors in high-speed optical modules and transceivers used in data centres 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’s Growth Prospects Remain Robust

Lumentum’s growing AI infrastructure footprint bodes well for its prospects. The company expects roughly half of sequential growth in the second quarter of fiscal 2026 to be driven by component products serving cloud applications.

This Zacks Rank #1 (Strong Buy) company now expects fiscal second-quarter revenues to be between $630 million and $670 million. Operating margin is expected to be between 20% and 22%, while earnings are anticipated to be in the $1.30-$1.50 per share range. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for fiscal second-quarter revenues is currently pegged at $654.4 million, suggesting 62.71% growth from the figure reported in the year-ago quarter. The consensus mark for earnings is pegged at $1.34 per share, up 16.5% over the past 30 days. Lumentum reported earnings of 42 cents per share in the year-ago quarter.

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This article originally published on Zacks Investment Research (zacks.com).

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