Lumentum hits new high as Morgan Stanley lifts target on AI optics demand
NASDAQ:LITE closed up 2.0% at $688.27, touching a fresh 52-week high. Shares added a bit more after hours as investors chased anything tied to AI data-center infrastructure.
Morgan Stanley raised its price target to $520 from $420 while keeping an Equal-Weight rating. The twist: that target sits below Tuesday's close, underscoring how quickly AI hardware names have run ahead of analyst models.
Why it moved
Analyst Meta Marshall wrote that "optical markets are set to grow to $65B-plus by 2028 from about $30B in 2025," driven by higher networking speeds and AI data-center buildouts. In plain terms: more GPUs mean more bandwidth, and that pushes spend into optical and photonic components.
Where Lumentum fits
Lumentum sells optical and photonic gear used to move data inside and between data centers, plus commercial lasers for manufacturing. Management says the company is "only at the starting line" for optical circuit switches and co-packaged optics-two approaches meant to ease traffic bottlenecks by moving more links to light.
The company cited an optical circuit switch backlog "well beyond $400 million" and a new "incremental multi-hundred-million-dollar" co-packaged optics order slated for delivery in the first half of calendar 2027. For fiscal Q3, Lumentum guided revenue to $780-$830 million. For details and event schedules, see Lumentum Investor Relations.
Price vs. target: the tension
With shares above the new $520 target, the market is pricing in stronger AI order momentum and cleaner execution than current consensus implies. That works-until it doesn't. Any slip in delivery schedules or pushouts from data-center customers could hit sentiment fast.
Peers and read-through
Action was mixed across the group late Tuesday. Coherent was flat, Ciena gained, while Marvell and Broadcom slipped. The broader takeaway: investors are selectively rewarding names with direct exposure to AI networking spend and visible order books.
Near-term catalysts to watch
- Management appearances: Susquehanna tech conference on Feb. 26 and Morgan Stanley TMT on March 2-listen for backlog conversion timing, lead times, and any color on co-packaged optics ramps.
- Updates on optical circuit switch deployments and co-packaged optics qualification milestones.
- Hyperscaler capex commentary across upcoming earnings-confirmation of AI network upgrades supports the thesis; caution or delays cut the other way.
What finance professionals should track
- Gap between price and target: a wide spread signals elevated expectations versus current models.
- Timing risk: sizable orders are pushed into 2027 delivery windows; slippage would matter for valuation.
- Peer comps: watch Ciena, Marvell, Broadcom, and Coherent for signals on optics demand, supply, and pricing.
- KPIs to note: book-to-bill, backlog conversion, and any change to FY revenue cadence.
Need a primer on how AI narratives flow into models and positioning? Explore AI for Finance resources.
For background on co-packaged optics technology and why it matters for data-center networks, see this overview from IEEE Spectrum: Co-Packaged Optics Explained.
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