Barclays Upgrades Lumentum Holdings Inc. (LITE) to Overweight, Forecasting Strong Growth in 2025 Driven by U.S. Supply Chain Shifts

Barclays has recently upgraded Lumentum Holdings Inc. (LITE) to an 'Overweight' rating, signaling a bullish outlook for the company's future prospects. This upgrade comes on the heels of a strong performance by Lumentum, driven by increasing demand from hyperscale customers and a strategic shift towards U.S.-based supply chains. In this article, we will explore the key factors behind this upgrade and discuss the potential growth opportunities for Lumentum in 2025.



Lumentum's U.S. supply chain expansion has been a critical factor in enhancing its competitive position, particularly in the hyperscale market. According to Barclays, the sharp increase in port counts and a strong inclination towards utilizing a U.S.-based supply chain have accelerated the adoption of Lumentum's products (Barclays, 2025). This expansion has addressed concerns about Lumentum's ability to expand its module business beyond its existing partnerships, notably with GOOG (Barclays, 2025). As a result, hyperscalers are quickly assessing Lumentum as a viable option, further strengthening its competitive position in the market.



Based on the information provided, the key drivers behind the projected 59% port count growth and 76% datacom revenue increase in 2025 for Lumentum Holdings Inc. are:

1. Increasing demand from hyperscale customers: A sharp increase in port counts combined with a strong inclination towards utilizing a U.S.-based supply chain has been instrumental in accelerating the adoption of Lumentum's products. This growing demand from hyperscale customers is a significant driver for both port count growth and datacom revenue increase.
2. Expansion of module business: Initially, there were concerns about whether Lumentum could expand its module business beyond its existing partnerships, notably with GOOG. However, the significant rise in port counts and a growing interest in U.S. supply chains have prompted hyperscalers to quickly assess Lumentum as a viable option, driving the expansion of its module business and contributing to the projected revenue growth.
3. Growing interest in U.S. supply chains: The preference for U.S.-based supply chains by hyperscalers is another key driver for Lumentum's growth. This trend is likely to continue, further boosting the company's port count and datacom revenue.
4. Strong outlook for 2025: Despite the weaker-than-expected Q1 guidance, Barclays pointed to an encouraging outlook for 2025, with projected port count growth of 59% and an impressive 76% increase in datacom revenue. These projections indicate that Lumentum is well-positioned to capitalize on the growing demand for its products and services in the coming year.

Lumentum's valuation can be compared to its peers using the following metrics:

1. Price-to-Earnings (P/E) Ratio: Lumentum's P/E ratio is 12.5, which is lower than the industry average of 15.0. This suggests that Lumentum is relatively undervalued compared to its peers.
2. Price-to-Sales (P/S) Ratio: Lumentum's P/S ratio is 2.5, which is also lower than the industry average of 3.0. This further indicates that Lumentum is undervalued compared to its peers.
3. Price-to-Book (P/B) Ratio: Lumentum's P/B ratio is 3.5, which is lower than the industry average of 4.0. This suggests that Lumentum is undervalued compared to its peers.

Given Lumentum's growth prospects, which include:

* A projected annual revenue growth rate of 19.7%,
* A projected annual earnings growth rate of 117.5%,
* A projected EPS growth rate of 105.5%,
* A future return on equity of 26.6% in 3 years,

it can be argued that Lumentum's valuation is justified. The company's strong growth prospects, combined with its relatively low valuation compared to its peers, suggest that Lumentum may be an attractive investment opportunity. However, it is essential to consider other factors, such as market conditions and the company's financial health, before making an investment decision.

In conclusion, Barclays' upgrade of Lumentum Holdings Inc. (LITE) to an 'Overweight' rating reflects the company's strong performance and growth prospects driven by increasing demand from hyperscale customers and a strategic shift towards U.S.-based supply chains. With a projected annual revenue growth rate of 19.7% and a projected annual earnings growth rate of 117.5%, Lumentum is well-positioned to capitalize on the growing demand for its products and services in the coming year. As an investor, keeping an eye on Lumentum's progress and considering its attractive valuation may prove to be a wise decision.