Morgan Stanley Warns Stretched Valuations May Temper Lumentum's (LITE) 2026 AI Growth

Lumentum Holdings Inc. (NASDAQ:LITE) is one of the hottest large-cap stocks of 2025. On December 17, Morgan Stanley raised the firm’s price target on Lumentum to $304 from $190 with an Equal Weight rating on the shares. After broadening from chips to infrastructure (especially optical) in 2025, the AI investment trend is expected to remain strong through mid-2026. Despite this momentum, a year-ahead note cautions that full-year success will require a more disciplined approach to stock picking, as current valuations have become stretched across the sector.

A day before this rating, Bank of America raised the firm’s price target on Lumentum to $375 from $210 with a Neutral rating on the shares. The firm substantially increased its price targets for Lumentum due to an exceptional surge in demand for optical components and transceivers. This adjustment reflects a market environment where orders for these technologies continue to outpace available supply.

Earlier on December 5, as well, JPMorgan analyst Samik Chatterjee also raised the firm’s price target on Lumentum to $350 from $235, while keeping an Overweight rating on the shares. The firm increased its financial projections for optical networking companies, pointing to scale-across and multi-rail opportunities as primary growth drivers. This positive outlook is fueled by a larger TAM for scale-across technologies and a new wave of telecom innovation designed to support multi-rail infrastructure in metro and long-haul networks.

JPMorgan believes that these factors will sustain the current high growth rates over a more extended period than previously expected. Consequently, the firm has applied a higher earnings multiple to these stocks to reflect their improved long-term valuation potential.

Lumentum Holdings Inc. (NASDAQ:LITE) manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. It operates through two segments: Cloud & Networking and Industrial Tech.

While we acknowledge the potential of 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.

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