Optics technology has emerged as a critical building block as more data centers are being constructed to meet the growing needs of artificial intelligence.
Lumentum Holdings (NASDAQ: LITE), a manufacturer of optical components that are used for both data centers and the telecommunications industry, has seen demand for its laser products rise quickly.
Net revenue for the second quarter of its fiscal year rose to $665.5 million, an over 65% year-over-year growth. The company estimates that it will generate between $780 million and $830 million in revenue for the third quarter of fiscal year 2026.
Earlier investors in the company have been rewarded for their patience as shares of the company skyrocketed by 995% during the past year, including a 330% jump during the past six months.
Lumentum faced a challenging four-year stretch when its net income fell from $397.3 million in fiscal 2021 to a loss of $546.5 million in 2024. But 2025 was the defining year when the company earned a profit — GAAP net income of $25.9 million on revenue of $1.65 billion.
The company has bounced back as it joined the ranks of the S&P 500 on March 23, received a $2 billion investment from chip maker Nvidia (NASDAQ: NVDA), and plans to expand with the opening of a new plant in Greensboro, North Carolina.
Nvidia’s $2 billion investment
Nvidia made a large investment in the company in March, a sign that the AI buildout is crucial to its growth, as companies are turning to software to solve more complex tasks to increase efficiency. The chipmaker also made a $2 billion investment into Lumentum’s rival Coherent (NYSE: COHR) to boost its supply chain.
Lumentum announced on March 26 that the company acquired a 240,000-square-foot facility that will produce advanced indium phosphide (InP)-based optical devices for Nvidia and other unnamed AI infrastructure customers. These devices, including advanced laser components, are critical elements in the operation of AI data centers.
The plant is operational and was purchased from Qorvo, a semiconductor chipmaker, but will undergo retrofits to manufacture Lumentum’s InP-based optical products, including continuous wave (CW) and ultra-high-power (UHP) lasers.
Stock’s rally could persist
Despite the massive rally of its stock in the past year, Wall Street analysts remain upbeat about the outlook for Lumentum, estimating double-digit growth in its shares.
Karl Ackerman, a BNP Paribas analyst, increased the price target of the stock to $1,040 from $625, a 43% increase from Lumentum’s March 23 price. The new North Carolina plant could produce $5 billion in annual revenue capacity due to its production of ultrahigh-powered lasers that will be purchased by Nvidia, while Alphabet (NASDAQ: GOOG) would purchase Lumentum’s optical circuit switches.
The optical-interconnect industry is estimated to increase to a $90 billion market by 2030 from its current value of $18 billion, Lumentum’s executives said at the Optical Fiber Communication Conference in March. Optics technology includes systems that transmit light and is used to conduct the transfer of data.
The demand for Lumentum’s components will only continue to rise as AI needs additional compute power to solve increasingly complicated tasks.
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