Lumentum Holdings Inc. saw its stock advance more than 7% in Monday's late-morning trading, building on a significant rally from the previous week. The move reflects continued investor optimism surrounding the company's pivotal role in supplying optical components for artificial intelligence data centers.
AI Infrastructure Demand Drives Outlook
The company recently reported fiscal second-quarter revenue of $665.5 million, with adjusted earnings of $1.67 per share. For the current quarter, management provided a revenue guidance range between $780 million and $830 million, with adjusted earnings per share projected from $2.15 to $2.35. CEO Michael Hurlston cited surging demand for optical circuit switches, noting the backlog has exceeded $400 million. He also announced a new multi-hundred-million-dollar order for co-packaged optics, scheduled for delivery in the first half of 2027.
Convertible Note Conversion Risk Emerges
In its latest quarterly filing with the SEC, Lumentum disclosed that its share price traded high enough during December to trigger eligibility for early conversion of its convertible notes. The company is obligated to settle the principal amount in cash if holders choose to convert. The filing warned that if a substantial number of noteholders exercise this right concurrently, it could strain the company's liquidity and "raise a substantial doubt" about its ability to continue operating.
Market participants are now monitoring whether the stock's appreciation will lead to actual conversions, which would require cash payouts, or if the risk remains merely an accounting concern. Attention is also on Lumentum's ability to fulfill its sizable switch backlog without eroding profit margins.
The broader context includes upcoming economic data that could influence tech stocks, with U.S. January jobs figures and Consumer Price Index inflation data scheduled for release this week. Sector peer Coherent also rose 6.4%, while the Invesco QQQ Trust, a tech-heavy ETF, gained approximately 0.5%.
While the AI-driven capital expenditure cycle fuels current growth, analysts note the inherent volatility. Any slowdown in AI infrastructure spending or delays in customer deployments could quickly pressure the stock. Conversely, accelerated conversions of the debt could force Lumentum to seek external financing under less favorable terms.
