Key Takeaways:
- Lumentum Holdings has outperformed Palantir over the past year, with a 328% increase in stock price
- Lumentum’s upcoming earnings report could give it a boost due to strong demand for its optical and photonic components
- The company’s non-GAAP operating margin increased by 15.7 percentage points year over year, with revenue increasing by 58% to $337 million
- Lumentum’s focus on boosting manufacturing capacity and generating over 60% of its revenue from the cloud and AI infrastructure market positions it for solid growth
- Analysts forecast healthy double-digit-percentage earnings growth, with a forward earnings multiple of 58
Introduction to Lumentum and Palantir
Lumentum Holdings, a networking components supplier, has been outperforming Palantir Technologies over the past year, with a stunning 328% increase in stock price. Palantir, on the other hand, has registered gains of 166% on the market, driven by the impressive acceleration in the company’s growth, largely due to the fast-growing demand for its artificial intelligence (AI) software solutions. As Palantir prepares to deliver its fourth-quarter results on February 2, investors are looking ahead to see if the company can justify its expensive valuation, trading at a whopping 416 times trailing earnings and 117 times sales.
Lumentum’s Growth Prospects
Lumentum Holdings has beaten Wall Street’s earnings expectations in each of the last four quarters, and this pattern is likely to continue. The company is witnessing robust demand for its optical and photonic components, which enable high-speed data transmission in AI data centers. As the company’s CEO noted, "Today’s Change(3.51%) $11.65Current Price$343.27Key Data PointsMarket Cap$24BDay’s Range$329.00 – $354.5052wk Range$45.65 – $402.79Volume12KAvg Vol4.5MGross Margin27.19%". This demand, combined with higher utilization rates and a favorable product mix, has led to a remarkable 15.7 percentage point increase in non-GAAP operating margin year over year, to 18.7%. Additionally, revenue increased by 58% to $337 million, resulting in adjusted earnings shooting up sixfold to $1.10 per share.
Lumentum’s Financial Performance
For its fiscal Q2, Lumentum is forecasting $650 million in revenue at the midpoint of its guidance range, representing a 62% year-over-year increase. Adjusted earnings are expected to more than triple year over year to $1.40 per share. The company’s focus on boosting manufacturing capacity has contributed to this stronger top-line jump. As Lumentum generates more than 60% of its revenue from the cloud and AI infrastructure market, it is well-positioned for solid growth, with infrastructure investments by major hyperscalers expected to hit $3 trillion in the next five years, according to Moody’s. As the article notes, "Lumentum has solid room for growth in its cloud and AI business. Not surprisingly, analysts have become bullish about the company’s prospects, forecasting healthy double-digit-percentage earnings growth."
Valuation and Growth Potential
Lumentum’s stock may seem expensive, with a price-to-earnings ratio of 208, but its phenomenal earnings growth and outlook justify its valuation. The company’s forward earnings multiple is a significantly lower 58, and its sales multiple of 13 is substantially lower than Palantir’s. As the article states, "Lumentum’s earnings are growing at a faster pace than Palantir’s, but it trades at a substantially lower valuation." Even if Lumentum’s valuation multiple contracts to the U.S. tech sector’s average earnings multiple of 45 after three years, its stock price could jump to $455, representing a 28% increase from current levels.
Conclusion and Recommendation
In conclusion, Lumentum Holdings is a strong contender in the AI market, with a solid growth prospects and a lower valuation compared to Palantir. As the company prepares to release its upcoming earnings report, investors may want to consider buying Lumentum, as its outstanding growth is likely to result in more upside for the stock. With analysts forecasting healthy double-digit-percentage earnings growth and a forward earnings multiple of 58, Lumentum’s stock has the potential to fly significantly higher. As the article notes, "Buying Lumentum right now looks like a smart move, as its outstanding growth is likely to result in more upside for the stock."
https://www.fool.com/investing/2026/01/16/this-artificial-intelligence-ai-stock-has-jumped-3/