Lumentum's OCS and CPO Momentum Builds: More Upside for the Stock?

Lumentum LITE is at an inflection point in two of the most strategically significant optical technologies powering the AI infrastructure buildout. Optical circuit switches (OCS) and co-packaged optics (CPO) are gaining considerable traction, and the momentum in both suggests the growth story is still in its early chapters.

OCS demand is accelerating well ahead of internal expectations, with the company's backlog surging past $400 million, the majority of which is slated for shipment in the second half of calendar 2026. Broad-based demand from multiple hyperscaler customers is driving this backlog expansion, and the run rate heading into fiscal 2027 now appears materially higher than originally anticipated. On the CPO front, an incremental multi-million-dollar purchase order for ultra-high-power lasers deliverable in the first half of calendar 2027 reinforces the depth of customer engagement. A strategic expansion into external light source modules could further amplify revenue content per deployment by approximately 2 to 2.5x compared to standalone laser chips, widening Lumentum's addressable opportunity meaningfully.

These structural tailwinds have been translating into financial performance. Second-quarter fiscal 2026 revenues grew 65.5% year over year to $665.5 million, with non-GAAP operating margin expanding over 1,700 basis points in the same period, demonstrating the operating leverage embedded in the model as volumes scale. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $805.39 million, indicating 89.41% year-over-year growth. With OCS backlog swelling and CPO orders extending well into 2027, there appears to be more upside ahead for LITE.

LITE Enjoys a Competitive Edge

Lumentum stands out among its peers, Marvell Technology MRVL and Coherent Corp COHR, in the optical networking and AI infrastructure space. LITE's differentiated position in OCS, with a commanding, rapidly expanding backlog across multiple hyperscaler customers, gives it a decisive edge over both Marvell and Coherent. While Coherent competes across similar transceiver and laser markets and Marvell leverages its semiconductor portfolio for AI connectivity, neither has demonstrated comparable OCS traction or the depth of CPO scale-out pipeline that Lumentum is now building. LITE's expanding external light source opportunity further widens its competitive moat against Marvell and Coherent, positioning it as the higher-conviction AI photonics play.

LITE’s Share Price Performance, Valuation & Estimate

Lumentum shares have surged 446.7% in the past six months compared with the Zacks Communication - Components industry’s appreciation of 151.1% and the Zacks Computer and Technology sector’s return of 10.6%.

LITE’s 6-Month Price Performance

From a valuation standpoint, Lumentum stock is currently trading at a forward 12-month Price/Sales ratio of 11.82X compared with the industry’s 5.97X. LITE has a Value Score of F.

LITE’s Valuation

The Zacks Consensus Estimate for third-quarter fiscal 2026 earnings is pegged at $2.24 per share, up by 70 cents over the past 30 days, indicating growth of 292.98% year over year.

Lumentum Holdings Inc. Price and Consensus

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

Lumentum currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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

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