Lumentum Holdings was among the hottest names in the artificial-intelligence trade at the start of the year. After a couple rocky months, it is time to buy, according to Barclays.
The firm upgraded Lumentum shares to Overweight from Equal Weight and reiterated a price target of $1,000 in a research note Monday. That endorsement, coupled with a resurgence across AI hardware stocks on Monday, gave the optical networking supplier a lift.
Lumentum rose 7.7% to $789.26, making it the day's top performer in the S&P 500. Not bad for a stock that had been down 30% since hitting a closing high of $1,053.09 on May 11.
Lumentum shares nearly tripled from the beginning of the 2026 through that May 11 peak, buoyed by a $2 billion investment from Nvidia and a surge in earnings.
Investors were banking on a swift transition from copper connectivity between AI chips and servers to fiberoptic solutions provided by companies such as Lumentum and Coherent. But the pace of that transition has come into question, and investors have looked for other AI bottlenecks such as memory and power chips, Barclays said.
Lumentum stock now trades at 41 times projected earnings over the 12 months, down from 62 times in early May. Coherent trades at 34 times forward earnings.
"We think Optics become a lot more interesting at these levels and nothing has changed fundamentally," wrote Barclays analyst Tom O'Malley.
Most notably, Lumentum's gross margin has expanded by 13 percentage points over the last year to around 48%. The company specializes in the lasers used in optical networking modules, which have sold for higher prices due to a supply shortage that won't be fixed any time soon, Barclays noted.
The market may be overly focused on co-packaged optics, or CPO, which refers to chip makers such as Nvidia integrating optical technology directly alongside processing chips. After plenty of excitement about CPO earlier in the year, the technology may not see wide adoption until 2029 or 2030, Barclays conceded. That shouldn't deter investors, though.
"We view these names as laser/transceiver-oriented first and foremost with CPO an add-on as we get towards the end of the decade," O'Malley wrote.
Barclays also reiterated an Overweight rating and $350 price target on Coherent stock. Shares rose 5.8% to $293.60 on Monday.
Write to Nate Wolf at nate.wolf@barrons.com
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July 20, 2026 14:31 ET (18:31 GMT)
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