Key Takeaways
- Lumentum Holdings is experiencing rapid growth in revenue and earnings, making it an attractive investment opportunity.
- The company’s upcoming quarterly report could further fuel its stock rally.
- Lumentum’s valuation is relatively attractive compared to other AI-related companies like Palantir Technologies.
- The company’s focus on cloud and AI infrastructure is driving demand for its products.
- Analysts forecast healthy double-digit-percentage earnings growth for Lumentum.
Introduction to Lumentum Holdings
Lumentum Holdings, a networking components specialist, has been experiencing tremendous growth in its revenue and earnings. The company’s stock has shot up by a stunning 328% in the past year, and its upcoming quarterly report could add fuel to its red-hot rally. As Harsh Chauhan notes, "Lumentum Holdings has beaten Wall Street’s earnings expectations in each of the last four quarters. That pattern is likely to continue this time." This is largely due to the company’s exposure to the fast-growing demand for artificial intelligence (AI) software solutions.
Lumentum’s Growth Drivers
The company’s optical and photonic components, which enable high-speed data transmission in AI data centers, are in high demand. Additionally, Lumentum is benefiting from higher utilization rates and a favorable product mix. As a result, its non-GAAP (adjusted) operating margin shot up by a remarkable 15.7 percentage points year over year in the first quarter of its fiscal 2026 to 18.7%. Furthermore, its revenue during the quarter increased by 58% to $337 million, leading to a sixfold increase in adjusted earnings to $1.10 per share. As Chauhan notes, "The company’s focus on boosting its manufacturing capacity is expected to drive a bigger year-over-year increase of 62% in revenue for its fiscal Q2."
Valuation and Outlook
Despite its rapid growth, Lumentum’s valuation is relatively attractive compared to other AI-related companies like Palantir Technologies. While Palantir is trading at a whopping 416 times trailing earnings and 117 times sales, Lumentum’s forward earnings multiple is a significantly lower 58. As Chauhan notes, "Lumentum’s earnings are growing at a faster pace than Palantir’s, but it trades at a substantially lower valuation." This makes Lumentum an attractive investment opportunity, especially considering its strong growth prospects. As Chauhan notes, "If Lumentum achieves the $10.12 EPS that analysts predict, its stock price could jump to $455, a 28% jump from current levels."
Growth Prospects
Lumentum’s growth prospects are driven by its exposure to the fast-growing cloud and AI infrastructure market. The company generates more than 60% of its revenue from this market, and it has been experiencing robust demand from both hyperscalers and networking equipment manufacturers. As Chauhan notes, "The infrastructure investments by the major hyperscalers could hit $3 trillion in the next five years, according to Moody’s, Lumentum has solid room for growth in its cloud and AI business." Analysts forecast healthy double-digit-percentage earnings growth for Lumentum, making it an attractive investment opportunity.
Conclusion
In conclusion, Lumentum Holdings is an attractive investment opportunity due to its rapid growth in revenue and earnings, relatively attractive valuation, and strong growth prospects. As Chauhan notes, "Buying Lumentum right now looks like a smart move, as its outstanding growth is likely to result in more upside for the stock." However, it’s essential to consider the risks and uncertainties associated with investing in the stock market. As Chauhan notes, "Before you buy stock in Lumentum, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lumentum wasn’t one of them." Nevertheless, Lumentum’s strong growth prospects and relatively attractive valuation make it an attractive investment opportunity for those looking to invest in the AI-related sector.
https://www.nasdaq.com/articles/artificial-intelligence-ai-stock-has-jumped-328-1-year-it-can-soar-higher-after-feb-3-hint
