Lumentum Stock Surges on Strong AI Optics Demand and Aggressive Guidance
Lumentum stock has seen a significant jump of nearly 10% in the past week due to the rally in chip stocks following bullish sector commentary from Citi. The company's AI optics demand continues to outpace forecasts, with rival supplier IQE reporting earnings that reinforced this trend.
The surge builds on an already strong quarter for Lumentum, with Q4 fiscal 2026 results showing revenue more than doubling to $1.01 billion and adjusted EPS of $3.23. The company's non-GAAP gross margin expanded to 50.4%, a jump of over 1,200 basis points from the prior year.
Guidance for the current quarter was even more aggressive, with management guiding revenue to $1.225 billion to $1.275 billion and adjusted EPS between $4.05 and $4.35. The supply crunch in laser chips and high-speed transceivers is attributed to a March partnership with Nvidia, which included a $2 billion equity investment and multi-year purchase commitments for advanced optical components.
Under the valuation model's assumptions, the stock is estimated to reach a target price of $1,653, implying 97.1% total upside from the current share price and a 27.5% annualized return over the next 2.8 years. This growth story depends on continued AI capex trends across hyperscalers, as Lumentum's entire growth narrative hinges on that spending continuing through 2027 and beyond.