Lumentum shares surge on Nvidia partnership and optical networking demand
The company’s shares climbed from approximately $806 to $1,049 following a $2 billion multi-year agreement with Nvidia and strong quarterly earnings that beat estimates.
Lumentum shares rallied from approximately $806 to $1,049 following praise from Nvidia CEO Jensen Huang for rival Marvell and the broader optical networking sector. The stock movement coincided with a $2 billion multi-year agreement between Lumentum and Nvidia to advance silicon photonics for artificial intelligence infrastructure. This partnership aims to accelerate the adoption of advanced optical technologies to support the next generation of gigawatt-scale AI factories.
Goldman Sachs projects the optical networking market to grow from $15 billion in 2026 to $154 billion by 2028. The firm identifies networking as the next frontier in AI infrastructure, citing the need for seamless data exchange and low latency. This outlook is supported by supply constraints, with Nvidia requesting suppliers to increase indium phosphide laser capacity by 20 times through 2030 to meet demand for ultra-fast optical interconnects.
Lumentum reported adjusted earnings per share of $2.37, beating estimates, with revenue up 90% year-on-year. The company’s adjusted gross margin of 47.9% also exceeded expectations. Looking ahead, Lumentum expects revenue to range from $960 million to $1.01 billion, with a midpoint of $980 million that surpasses analyst estimates of $936 million.
Analysts at Needham reiterated a “Buy” rating with a $1,040 price target, while Morgan Stanley raised its target to $900. Of the 21 analysts covering the stock, 14 hold a “Strong Buy” rating, contributing to a mean target price of $1,111.55. This implies a potential upside of 17.6% from current levels, with the high-end target of $1,400 suggesting up to 48.14% possible growth.
The broader market sentiment has been bolstered by the recognition that optical networking, which transmits data as pulses of light, delivers significantly more bandwidth and higher speeds than traditional copper wiring. As training clusters increasingly require tens of thousands of GPUs connected with ultra-fast optical interconnects, the sector is viewed as essential to sustaining the current artificial intelligence boom.
