Shares of Lumentum Holdings surged nearly to a new intraday high on Tuesday, driven by bullish analyst upgrades ahead of the company's fiscal third-quarter earnings report. The optical-networking supplier's stock traded at $1,016.01, up approximately 4%, after reaching a peak of $1,017.50. The rally comes as Wall Street firms raise their price targets, reflecting optimism about the company's role in the AI infrastructure boom.
Stifel raised its price target for Lumentum to $1,100 from $800, maintaining a Buy rating. Loop Capital also increased its target sharply to $1,400 from $900, also keeping a Buy rating. These moves come ahead of the company's fiscal Q3 results, due after the market close on Tuesday. Lumentum previously guided for revenue in the range of $780 million to $830 million and adjusted earnings per share of $2.15 to $2.35.
The stock has skyrocketed 1,444% over the past year, making it one of the top performers in the AI-driven market. The company's fiscal second-quarter results set a strong tone, with revenue jumping 65.5% year-over-year to $665.5 million and GAAP net income reaching $78.2 million. CEO Michael Hurlston described the quarter as a "standout," emphasizing that the company is "only at the starting line" for its optical circuit switches and co-packaged optics products.
These two product lines are now central to Lumentum's growth story. Optical circuit switches manage data routing in networks, while co-packaged optics integrate optical components closer to chips, reducing power loss and increasing bandwidth. Lumentum reported an optical circuit-switch backlog of "well beyond $400 million" and a new multi-hundred-million-dollar order for co-packaged optics, with delivery scheduled for the first half of 2027.
Nvidia's involvement has added significant weight to the trade. In March, the chipmaker invested $2 billion in Lumentum through a nonexclusive deal, securing a multibillion-dollar commitment to purchase high-end laser parts. Nvidia also invested $2 billion in Coherent, keeping its options open. This partnership underscores the strategic importance of Lumentum's technology in AI data centers.
To meet growing demand, Lumentum announced plans for a 240,000-square-foot plant in Greensboro, North Carolina, targeting production of indium phosphide-based optical devices. The ramp-up is expected by mid-2028, with Nvidia already signed as a customer for the new facility. Stifel's analyst Ruben Roy highlighted quicker capital outlays from hyperscalers and noted that optical-networking suppliers now have 12 to 18 months of order visibility. Stifel forecasts 2026 capital spending for the "Big 5" hyperscalers at around $705.2 billion, a 67.3% increase from the previous year.
Despite the bullish sentiment, Lumentum trades at a high price-to-earnings ratio of nearly 299, and its stock price already exceeds some analysts' published targets. Any disappointment in earnings, such as delayed orders or thinner margins, could lead to a sharp reversal of the AI-driven gains. The market is closely watching the upcoming earnings report for signs of sustained growth.
