Lumentum Holdings, ticker symbol LITE, might not be the first name that comes to mind for many investors, but if you’ve been tracking its stock over the past four and a half months, you’d notice it’s been on quite the impressive upward journey. The company is a key player in the manufacturing and sale of optical and photonic components, systems, and modules, which are essential for high-speed data transmission. Additionally, Lumentum supplies laser products used in industrial applications. Recently, their optical offerings have seen a surge in demand, largely driven by the need to enhance AI workloads in data centers.
Since unveiling its fiscal 2024 earnings on August 14, 2024, Lumentum’s shares have surged a whopping 84%. It’s worth digging into what’s fueled this remarkable growth and whether Lumentum can maintain this incredible pace going into 2025.
### Lumentum Holdings’ Rising Tide with AI
When Lumentum dropped its fiscal 2024 financials last August, the news wasn’t all rosy; they saw a 23% slide in revenue, down to $1.36 billion. Adjusted earnings also took a significant hit, plummeting to $1.01 per share from $4.56 the prior year. The downturn was mainly due to a 38% slump in industrial segment revenue, which fell to $274 million.
Their core business in the cloud and networking sectors—which accounts for nearly 80% of total revenue—also declined by 18% in fiscal 2024, partly due to waning demand in the telecom sector. Yet, Lumentum’s early fiscal 2025 results, ending September 28, 2024, indicate a shifting tide.
In the first quarter of fiscal 2025, Lumentum reported a 6% year-over-year revenue increase, reaching $337 million—outpacing their own projections. This boost was mainly due to a 23% rise in revenue from the cloud and networking sector, fueled by the expanding rollout of AI infrastructures that drive demand for their connectivity modules.
A standout moment came when Lumentum announced that multiple cloud and AI clients had chosen their externally modulated lasers (EMLs) for high-speed data transmission through fiber optics. They hit record EML shipments that quarter and have a strong backlog of orders stretching into fiscal 2025.
Looking forward, Lumentum anticipates a 30% to 40% surge in EML demand this fiscal year and is ramping up production capacity accordingly. With AI deployment on the rise, Lumentum predicts their opportunity in the data center photonics market could skyrocket to $16 billion by 2028, up from $4.5 billion in 2023.
Unsurprisingly, analysts expect Lumentum’s robust growth to continue into the current quarter. The company forecasts revenue of $390 million for fiscal Q2—a 6% increase over last year’s same period, with expected earnings of $0.35 per share, an improvement from $0.32 a year earlier. Don’t be shocked if Lumentum outperforms these estimates in 2025, given its strong order backlog and the rapid expansion of the AI networking market.
### Prospects for Continued Growth in 2025 and Beyond
Despite the notable declines in revenue and earnings for fiscal 2024, projections for the next couple of years look promising.
The chart above shows that Lumentum’s earnings are poised to grow by 56% in this fiscal year and could soar by 134% in fiscal 2026. If Lumentum hits its target of $3.70 per share in earnings over the next two years and trades similarly to the tech-heavy Nasdaq-100 index, valued at 33 times earnings, its stock price could rise to $122. That’s a potential 47% increase from current levels, making it an attractive option for investors who’ve missed the AI stock rally thus far. There’s still plenty of upside to consider.
