Nvidia Partner Rallies 1,600% In Less Than A Year. This Could Keep It Going Longer.

Not much is going wrong with Lumentum Holdings (LITE) lately. Demand for its products is booming, and it just announced a partnership with AI paragon Nvidia (NVDA). Lumentum stock is the newest addition to the S&P 500 index, too.

After slumping a few years ago, the provider of optical components has turned itself around and is now one of the fastest-growing tech companies.

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In the quarter ended in December 2024, Lumentum reported a 75% increase in earnings per share that began a superb growth streak. Adjusted earnings growth ranged from 298% to 533% in the quarters since, according to IBD MarketSurge. During the three-month period that ended last June, Lumentum earned 88 cents a share, flipping from a year-earlier loss of 13 cents.

Sales growth has also accelerated, rising from 6% to 10%, 16%, 56%, 58% and 65% over the past six quarters. Lumentum forecast revenue of $780 million to $830 million for the current quarter, vs. $425.2 million a year ago. It sees adjusted earnings of $2.15 to $2.35 per share, compared with 57 cents in the year-ago period.

That’s a sharp contrast to the fiscal year that ended in June 2023, when earnings fell 25% and a further 90% the next fiscal year. The company struggled as telecom and network builders realized they had bought too much inventory and cut back spending.

But earnings rebounded 368% in the most recent fiscal year. The catalyst: artificial intelligence data centers and the company’s efforts to capture that market.

Lumentum A Major AI Supplier

Hyperscalers — the internet giants building artificial intelligence applications — are adding clusters of AI computer servers in data centers that require faster optical communications. And it doesn’t get any faster than optical technology, which harnesses the speed of light to move data.

Lumentum is one of the largest vendors of optical components in the world. It has a dominant market share in 3D sensing components, says Needham analyst Ryan Koontz.

“Lumentum is solidifying itself as a key supplier in the AI optical race,” the analyst said in a note following the company’s Feb. 3 earnings report.

New optical circuit switching products are expected to ship in large volumes this year and ramp up from there.

“We see the unprecedented demand for AI network infrastructure as the key long-term growth driver. … We expect Lumentum will deliver improved results across top line, margins, income, and cash flow,” Koontz added.

The analyst has since raised his price target to 850 from 550 with a buy rating.

The February earnings report not only took Wall Street by surprise but also marked a new direction. Susquehanna analyst Christopher Rolland said the company “unlocked a new financial model, and one with a step-change via higher gross/operating margins.”

Teaming Up With Nvidia

Then on March 2, Nvidia announced an agreement with Lumentum that guarantees future access to Lumentum’s advanced laser components. As part of the deal, Nvidia is investing $2 billion in Lumentum, as well as making new purchase commitments.

Nvidia simultaneously announced a similar deal with Coherent (COHR). Both Lumentum and Coherent make optical circuit switches called transceivers for artificial intelligence data centers.

A year ago, such a partnership seemed far fetched. Lumentum and Coherent shares came under pressure on concerns that co-packaged optics (CPO) could hurt demand for optical transceivers. Those consist of packaging optical transceivers with integrated chips to reduce electrical paths and cut power consumption while boosting bandwidth concentration.

In its latest earnings report, Lumentum said it is “at the starting line” for growth opportunities in co-packaged optics and optical circuit switches (OCS). Customer demand for OCS has already driven its backlog above $400 million, while it won a “multi-hundred-million-dollar order” in the CPO business.

Mizuho analyst Vijay Rakesh raised his price target on Lumentum on March 7 to 750 from 645 and maintained an outperform rating. The Nvidia deal, he noted, may enable Lumentum to boost CPO production. The analyst expects OCS sales of more than $650 million in Lumentum’s fiscal year ending in June 2028.

AI Networks Use Lumentum

Lumentum’s products help run the networks behind AI, cloud computing and innovations in communications, the company says. Energy-efficient data center connectivity, advanced telecom networks and industrial manufacturing all benefit from those products.

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As the world relies more and more on growing data flows, Lumentum says its products and technology make it possible to scale up optical networks and data centers, with AI at the forefront of that trend.

“We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life will continue into the future,” Lumentum said in a quarterly Securities and Exchange Commission filing.

Lumentum’s main customers include network gear companies such as Ciena (CIEN) and Cisco Systems (CSCO) as well as hyperscalers Meta Platforms (META), Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOGL), according to Needham’s report.

Notable Risks Remain

Even with all the momentum behind it, Lumentum still faces notable risks.

The stock was volatile Tuesday, after Nvidia Chief Executive Jensen Huang said the AI chip company will continue to use copper cables for much of the data transfer between its artificial intelligence chips. That stops short of a full transition to optical fiber. Optical data can travel much faster than copper, although it is more fragile than the red metal.

Lumentum stock closed higher Tuesday, however, and rose sharply Wednesday.

The company also faces tariffs — a risk that’s unclear after the U.S. Supreme Court struck down most tariffs on Feb. 20. President Donald Trump immediately moved to impose a new 15% global tariff.

The U.S. government has placed additional restrictions on China’s access to U.S. technology, which effectively ended Lumentum’s business with China-based Huawei Technologies, Lumentum said in its most recent quarterly SEC filing.

In addition, every once in a while, investors become jittery about AI spending as many wonder how much is left in the AI buildout, or if a bubble is building in artificial intelligence.

Needham’s Koontz, however, sees hyperscaler orders increasing in both scale and duration. The firm expects capital spending to trend upward this year, with a consensus 2026 estimate of 62% growth from just 18% nine months ago.

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“Longer-term, we do expect capex growth will slow to a lower growth rate as the ‘law of big numbers’ weighs,” he added.

Still, Koontz is even more bullish about optical tech gaining market share in the AI and cloud markets as optics slowly displace copper, and other technologies gain ground.

Lumentum did not respond to a request from Investor’s Business Daily for an interview.

Lumentum Joins S&P 500 Index

Earlier this month, S&P Dow Jones Indices announced that Lumentum Holdings will be added to the S&P 500 index as of the start of trading on March 23. The company’s growth into a $45 billion market cap business is largely why it’s joining the benchmark index, and moving off the S&P MidCap 400 index.

Generally, being added to the S&P 500 boosts a stock. That’s because funds that track the U.S. benchmark index have to invest in the stock to balance out the index.

The company was born out of the 2015 split of the former JDS Uniphase. Lumentum got optical communications and commercial lasers, while Viavi Solutions (VIAV) became a test and monitoring tech company that serves data centers, communication networks, aerospace and other markets.

Company Leads Industry Group

Lumentum is the leader in IBD’s fiber optics industry group, owning a highest-possible 99 Composite Rating.

The stock is up more than 75% year to date after rallying 339% in 2025. It’s pulled back as much 30% from its March 2 peak amid broad market weakness. But the stock remains well above the important 10-week moving average. Lumentum has a 99 Relative Strength Rating and 98 three-month RS Rating.

Shares, not surprisingly, are well extended. The most recent buy areas on the stock chart came in October and January, when Lumentum rebounded from pullbacks to the 10-week moving average. Such behavior is typical of stocks under institutional accumulation.

But after soaring more than 1,600% from last April’s lows, the stock could use a break. Shares jumped more than 70% in a three-week span last month in climax-top-like action that suggests the stock will consolidate for weeks or perhaps months. Watch for a new base pattern to emerge with a new buy area.

Lumentum is in the IBD 50 and Big Cap 20.

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