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Lumentum Holdings has seen a 49% surge in the past three months due to fast-growing demand for optical networking components in AI data centers. The company's improving margin profile has driven rapid bottom-line growth, and its earnings growth potential suggests further upside for investors. Lumentum's latest quarterly results were fantastic, with a 56% increase in revenue and a non-GAAP operating margin of 15%. The company is confident in sustaining its growth momentum due to strong demand for its laser components in AI and cloud infrastructure.

Lumentum Holdings (NASDAQ: LITE) has experienced a remarkable 49% surge in its stock price over the past three months, driven by the rapid deployment of artificial intelligence (AI) infrastructure and a strong demand for optical networking components in AI data centers. The company's improving margin profile has significantly contributed to its bottom-line growth, and its earnings growth potential suggests further upside for investors.

Lumentum's latest quarterly results, released on Aug. 12, were particularly impressive. The company reported a 56% increase in revenue for the fourth quarter of fiscal 2025, reaching $481 million. This growth was primarily driven by healthy demand for its components used in the cloud and networking segment, especially from hyperscale customers. Moreover, Lumentum's improving product mix and increased manufacturing utilization rates led to a remarkable increase in its margins. The company reported a non-GAAP operating margin of 15% in fiscal Q4, a significant turnaround from the negative reading of 5.1% in the same period last year. As a result, Lumentum swung to an adjusted profit of $0.88 per share last quarter, compared to a loss of $0.13 per share in the year-ago period [1].

Looking ahead, Lumentum is confident in sustaining its outstanding growth momentum. The demand for its laser components, which are deployed in high-speed optical networks used in AI and cloud infrastructure, is outstripping supply. The company ended the quarter with record orders and shipments for its advanced laser components and optical modules. Furthermore, Lumentum has added a third hyperscale customer for its optical circuit switches and received the largest single purchase commitment in company history for its ultra-high power lasers [1].

Analysts are also optimistic about Lumentum's prospects. The company has guided for $510 million to $540 million in revenue for the first quarter of fiscal 2026, which would translate into a 56% year-over-year increase at the midpoint. Lumentum management believes it could achieve revenue of $600 million by the fourth quarter of the current fiscal year, suggesting that it is on track to maintain healthy growth levels. Additionally, analysts expect Lumentum's bottom line to more than double in the current fiscal year from last year's level of $2.06 per share [1].

In conclusion, Lumentum Holdings' strong Q4 earnings and the company's confidence in sustaining its growth momentum make it an attractive investment opportunity for those looking to capitalize on the AI revolution. However, investors should also consider the broader market conditions and other investment options before making a decision.

References:
[1] https://www.nasdaq.com/articles/49-3-months-magnificent-artificial-intelligence-ai-stock-can-continue-skyrocket