Lumentum Holdings Inc. (LITE): A Bull Case Theory

We came across a bullish thesis on Lumentum Holdings Inc. on R. Dennis’s Substack by OppCost. In this article, we will summarize the bulls’ thesis on LITE. Lumentum Holdings Inc.'s share was trading at $381.44 as of January 29th. LITE’s trailing and forward P/E were 234.01 and 64.94 respectively according to Yahoo Finance.

Lumentum Holdings Inc. manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East, and Africa. LITE stands at the forefront of the AI infrastructure build-out, having successfully transformed from a consumer-electronics-dependent component supplier into a vertically integrated leader in cloud networking and data center interconnects. Over the past five years, the company navigated a severe inventory correction that saw revenue contract by over 23% in FY2024, but it has since achieved a V-shaped recovery driven by surging demand for high-speed optical transceivers, particularly 800G and 1.6T modules for hyperscale cloud providers.

Strategic acquisitions, including NeoPhotonics and Cloud Light, have allowed Lumentum to move up the value chain, selling complete transceiver modules directly to major hyperscalers, capturing high-margin revenue, and strengthening its competitive moat. The Cloud & Networking segment now dominates, accounting for roughly 88% of revenue, with Indium Phosphide-based EMLs serving as a critical differentiator, while the legacy Industrial Tech segment has faced headwinds but remains cash-generative. Financially, the company has seen strong momentum, with Q1 FY2026 revenue rising 58% year-over-year to $533.8 million and non-GAAP operating margins expanding to 18.7%, reflecting efficient operational leverage.

While the stock currently trades at a premium, implying perfection in execution, valuation models suggest an intrinsic value near $126 per share, highlighting a significant premium but also underscoring the strong growth prospects in AI infrastructure. Given its robust positioning, technological leadership, and accelerating AI-driven demand, Lumentum presents a compelling opportunity for investors seeking exposure to the AI supply chain, offering a high-growth, strategically aligned business at an attractive entry point relative to its long-term potential, especially for those willing to navigate near-term volatility and convertible debt considerations.

Previously we covered a bullish thesis on Wolfspeed, Inc. (WOLF) by Moist-Clerk in October 2024, which highlighted the company’s leadership in silicon carbide and gallium nitride technologies and the ramp-up of its Mohawk Valley Fab to capture EV and renewable energy growth. The company's stock price has appreciated approximately by 6.90% since our coverage. OppCost shares a similar bullish perspective in Lumentum Holdings Inc. (LITE) but emphasizes AI infrastructure and strategic acquisitions as key growth drivers.

Lumentum Holdings Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 59 hedge fund portfolios held LITE at the end of the second quarter which was 50 in the previous quarter. While we acknowledge the risk and potential of LITE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LITE and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.