Lumentum Plunges 5.6% Amid AI Sector Volatility – What’s Fueling the Selloff?

Summary
• LITE trades at $300.105, down 5.6% from its $317.93 close
• Intraday range spans $292.90 to $323.37
• 52-week high of $325.46 now acts as a psychological ceiling

Lumentum Holdings (LITE) is under pressure, with shares tumbling 5.6% in a volatile session marked by sharp intraday swings. The stock’s decline follows a recent rally driven by analyst upgrades and AI-driven demand optimism, but today’s selloff raises questions about sustainability. With a dynamic P/E ratio of 1,266.5 and a 52-week low of $45.65, the stock’s trajectory reflects a tug-of-war between bullish fundamentals and bearish technicals.

Profit-Taking and Valuation Concerns Weigh on LITE
LITE’s sharp decline stems from profit-taking after a 62% 30-day rally and growing skepticism about its stretched valuation. The stock’s dynamic P/E ratio of 1,266.5—far exceeding the sector average—has triggered caution among investors. Recent analyst upgrades, including a $325 price target from Mizuho, were priced in quickly, leaving the stock vulnerable to corrections. Additionally, the broader AI sector’s mixed performance, with peers like Coherent (COHR) rising 0.8%, highlights divergent investor sentiment. The selloff also reflects concerns about LITE’s debt load (debt-to-equity of 4.2) and reliance on a few cloud customers, which could amplify volatility.

Communication Equipment Sector Splits as LITE Diverges from COHR’s Gains
While LITE tumbles, sector leader Coherent (COHR) rises 0.8%, underscoring divergent investor priorities. COHR’s strength may reflect its diversified product portfolio and lower debt burden compared to LITE’s concentrated AI optics exposure. The sector’s mixed performance suggests that LITE’s selloff is more tied to its own valuation extremes than a broader industry downturn. Investors are likely rotating into more defensively positioned tech plays, leaving LITE’s high-multiple story exposed to profit-taking.

Navigating LITE’s Volatility: ETFs and Options for Tactical Traders
• 200-day MA: $117.68 (far below current price)
• 30-day MA: $231.76 (key support)
• RSI: 62.68 (neutral territory)
• MACD: 31.26 (bullish divergence)
• Bollinger Bands: Upper at $329.29, Middle at $255.75

LITE’s technicals suggest a potential bounce from the 30-day MA at $231.76, but the 200-day MA remains a distant anchor. Traders should monitor the $300 level as a critical support; a break below could trigger a test of the $255.75 middle Bollinger Band. The RSI’s neutral reading implies no immediate overbought/oversold signals, but the MACD’s bullish divergence hints at lingering momentum. With no options data available, ETFs like XLK (XLF) could offer sector exposure, though LITE’s standalone volatility makes it a high-risk play.

Backtest Lumentum Holdings Stock Performance
To run an event-study back-test I first need to clarify exactly how we define the “-6 % intraday plunge” that will trigger an event. Two common definitions are:1. Close-to-Close definition • Event day = the trading day on which the closing price is at least 6 % lower than the previous day’s close. • Simple, robust, but it measures a day-over-day drop rather than a purely intraday draw-down.2. Intraday Low definition • Event day = the trading day on which the intraday low is at least 6 % below the previous day’s close (regardless of how the stock finally closed). • Captures true intraday panic, but requires low prices as well as the prior close.My recommendation, unless you have a strong preference, is to proceed with option 1 (close-to-close) because it is unambiguous and can be calculated directly from the data I have already retrieved.Please let me know which definition you would like me to use (or supply a different rule) and I’ll generate the event dates, run the back-test from 2022-01-01 to today, and show you the results.

LITE’s Correction: A Buying Opportunity or a Warning Sign?
LITE’s 5.6% drop reflects a mix of profit-taking and valuation concerns, but its long-term AI optics thesis remains intact. Investors should watch the $300 support level and the sector leader Coherent (up 0.8%) for directional clues. A rebound above $325 could rekindle bullish momentum, while a breakdown below $255.75 would signal deeper trouble. For now, the stock’s volatility demands caution—position sizing and stop-loss placement are critical. As the AI infrastructure race intensifies, LITE’s ability to maintain its competitive edge will determine whether this selloff is a buying opportunity or a red flag.