Lumentum Holdings Inc. (LITE.US) saw its shares surge more than 7% in after-hours trading on Tuesday, following the release of its better-than-expected fiscal 2026 second-quarter results and third-quarter guidance that far exceeded market expectations. Financial results revealed that the cloud computing and networking equipment company generated revenue of $665 million for the second quarter ended December 27, a significant 65% increase year-over-year, surpassing the analyst consensus estimate of $652 million. GAAP earnings per share came in at $0.89, markedly higher than the average analyst estimate of $0.49; adjusted earnings per share were $1.67, also beating the consensus forecast of $1.41. For the third quarter of fiscal 2026, Lumentum anticipates adjusted earnings per share to be in the range of $2.15 to $2.35, substantially above the analyst consensus estimate of $1.59. The company projects third-quarter revenue to be between $780 million and $830 million, with the midpoint of this guidance at $805 million, again far exceeding the average analyst expectation of $707 million. Lumentum's CEO, Michael Hurlston, stated, "Our forward guidance indicates revenue growth exceeding 85% year-over-year, but we are only just at the starting line of two major opportunities—Optical Circuit Switching (OCS) and Co-Packaged Optics (CPO). In OCS, we are rapidly scaling to meet substantial customer demand, with our current backlog now exceeding $400 million. In CPO, we have secured an additional order worth hundreds of millions of dollars, with shipments expected to commence in the first half of 2027. Our performance continues to highlight the strength of our roadmap in optical components and systems, positioning us as an indispensable partner to global AI leaders." The explosion in AI computing power is driving extreme demand for high-speed interconnects, with CPO technology emerging as a core solution to overcome bandwidth and power consumption bottlenecks. Simply put, CPO involves co-packaging the optical engine with the chip (CPU/GPU/switch ASIC), enabling electrical signals to be converted to optical signals without long-distance travel, fundamentally addressing two key pain points of traditional optical modules—a dramatic reduction in power consumption and a surge in bandwidth density. Earlier last month, Bank of America reiterated its "Neutral" rating on Lumentum but raised its price target on the stock from $210 to $375. The bank stated that it significantly increased its price target due to robust market demand for optical transceivers and components, noting that supply in these areas still fails to meet demand. Morgan Stanley also maintained its "Neutral" rating on Lumentum while raising its price target from $190 to $304. The firm indicated that the scope of AI-related investments in 2025 has expanded beyond semiconductor stocks and will benefit infrastructure companies, particularly those in the optical communications market. Morgan Stanley expects this trend, especially for optical communications companies, to persist into the first half of 2026.
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