Lumentum Holdings: A Stock Built for More Upside with Rapid AI Infrastructure Deployment

Lumentum Holdings has seen a 49% increase in its stock price over the past three months due to growing demand for its optical networking components in AI data centers. The company's improving margin profile and rapid earnings growth suggest that investors can expect more upside from this stock. Lumentum's latest quarterly results were fantastic, and its outlook indicates that the stock is built for more upside.

Lumentum Holdings (NASDAQ: LITE) has experienced a remarkable 49% increase in its stock price over the past three months, driven by surging demand for its optical networking components in artificial intelligence (AI) data centers. The company's latest quarterly results, released on August 12, 2025, demonstrate robust growth, with fiscal 2025 fourth-quarter revenue up by 21% year-over-year (YOY) and a significant increase in margins [1].

Lumentum's optical and photonics components are essential for high-speed data transmission in data centers and telecom networks, a critical requirement for AI-focused data centers. The company's improving margin profile, driven by a healthy demand for its products in the cloud and networking segment, has led to a notable increase in its operating margin. Lumentum reported a non-GAAP operating margin of 15% in fiscal Q4 2025, a significant turnaround from the negative 5.1% margin in the same period last year. This improvement resulted in an adjusted profit of $0.88 per share, compared to a loss of $0.13 per share in the year-ago period [1].

Looking ahead, Lumentum is confident in sustaining its growth momentum. The company ended the quarter with record orders and shipments for its advanced laser components and optical modules. The addition of a third hyperscale customer for its optical circuit switches, along with a substantial purchase commitment for ultra-high power lasers, underscores the strong demand for Lumentum's products [1].

Analysts expect Lumentum's bottom line to more than double in the current fiscal year, with the stock price potentially jumping to $213 in the next three years, assuming a 30 times earnings multiple and earnings of $7.11 per share in fiscal 2028 [1]. However, investors should consider other growth opportunities as well, as the Motley Fool Stock Advisor team has identified other stocks with significant potential returns [2].

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