Lumentum LITE is benefiting from accelerating demand for pump, electro-absorption modulated laser (EML) and continuous-wave (CW) lasers as hyperscalers expand artificial intelligence (AI) training, inference and data-center interconnect infrastructure. Rising bandwidth requirements are accelerating the transition toward 800G, 1.6T, near-packaged optics (NPO) and co-packaged optics (CPO). This trend strengthens Lumentum’s position in high-speed optical connectivity and strengthens its competitive prowess against Broadcom AVGO and Applied Optoelectronics AAOI as AI clusters require increasingly dense optical links.
Pump lasers are emerging as a key growth driver. Lumentum’s pump laser shipments increased more than 80% year over year in the fourth quarter of fiscal 2026, while demand continues to exceed available supply despite capacity expansion. AI training and inference are increasing full-rate connectivity requirements between data centers, driving scale-across deployments. The company expects pump laser shipments to increase roughly fourfold over the next several quarters and has secured multiple long-term customer agreements that help offset planned capital expenditures required to expand production.
Demand for Lumentum’s EML portfolio is strengthening as customers migrate toward higher lane speeds. In the fourth quarter of fiscal 2026, 200G-per-lane EMLs represented more than 25% of total EML revenues. The company expects 200G EMLs to account for 50% or more of shipment volumes by mid-2027. LITE is expanding capacity across its two indium-phosphide fabs in Japan for upcoming 200G and 300G-per-lane opportunities and remains on track for more than 50% year-over-year EML unit growth in the third quarter of fiscal 2027.
CW and ultra-high-power lasers provide additional growth opportunities. Lumentum’s tight laser specifications are helping customers improve transceiver manufacturing yields, supporting premium pricing. The company has narrowed the margin gap between its CW and EML products. Ultra-high-power laser revenues are expected to approach $50 million by the end of calendar 2026, with the business potentially reaching its first triple-digit quarterly revenue level in the third quarter of fiscal 2027. Meanwhile, LITE’s 120-milliwatt, 150-milliwatt and 400-milliwatt laser technologies position it to benefit as NPO and CPO increasingly move optics closer to AI accelerators.
LITE Faces Tough Competition
Broadcom competes directly with Lumentum across high-speed optical connectivity. AVGO’s portfolio spans CPO, 1.6T DSPs, CW and EML lasers, alongside 200G and 400G SerDes, Ethernet switches and fabric solutions. The company also has substantial scale in AI infrastructure, with AI semiconductor revenues surging 221% year over year to $16.7 billion in the third quarter of fiscal 2026. AI networking revenues increased more than 2.5 times year over year during the quarter. Its integrated portfolio of switches, DSPs, lasers, NICs and routers, combined with strong hyperscaler relationships, could help Broadcom capture a greater share of optical content as AI clusters expand.
Applied Optoelectronics is strengthening its position primarily in high-power and CPO lasers. AAOI is expanding in-house laser and external light source (ELSFP) production, with ELSFP capacity targeted to reach roughly 400,000 units per month in 2028. Its existing laser-fab capacity is expected to increase almost 300% by the third quarter of 2027, while a second Houston-area fab is planned at roughly four times the size of its current facility. AAOI is working with at least five CPO customers. These investments could intensify competition for Lumentum as demand for high-power optical sources and next-generation AI connectivity continues to rise.
LITE’s Share Price Performance, Valuation & Estimates
Shares of Lumentum have appreciated 165.2% year to date, outperforming the broader Zacks Computer and Technology sector’s 18.5% growth.
LITE Stock’s Price Performance
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LITE stock is trading at a premium, with a forward 12-month price-to-earnings ratio of 41.24 compared with the broader sector’s 20.73. Lumentum has a Value Score of F.
LITE’s Valuation
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The Zacks Consensus Estimate for Lumentum’s earnings is currently pegged at $4.22 per share, up by 66 cents over the past 30 days, suggesting 283.64% year-over-year growth.
Lumentum currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Applied Optoelectronics, Inc. (AAOI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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