Lumentum Holdings (LITE 5.47%) may not be a household name among investors, but a closer look at its stock price chart for the past four and a half months will tell us that it has been on a tearing run on the market.
The company manufactures and sells optical and photonic components, modules, and systems that enable high-speed data transmission, along with laser products that are used in industrial applications. Lumentum's optical products are deployed in data centers to enable fast data transfer speeds, and have recently witnessed a solid jump in demand to support artificial intelligence (AI) workloads.
Shares of the company have shot up a remarkable 84% since the release of its fiscal 2024 results on Aug. 14, 2024. Let's see what has caused this parabolic jump in Lumentum's stock price and check if it can sustain its terrific momentum in 2025 as well.
NASDAQ: LITE
Key Data Points
Lumentum Holdings' fortunes are turning around thanks to AI
When Lumentum released its fiscal 2024 results last August, the company reported a 23% drop in its top line, to $1.36 billion. Meanwhile, its adjusted earnings fell to $1.01 per share from $4.56 per share in fiscal 2023. This poor performance was a result of the decline in demand from the industrial segment, where Lumentum witnessed a 38% drop in revenue to $274 million for the fiscal year.
The cloud and networking segment, which accounts for the majority of Lumentum's business by producing almost 80% of its revenue, also witnessed an 18% drop in revenue in fiscal 2024 thanks to softening demand from the telecom sector. However, Lumentum's latest results for the first quarter of fiscal 2025 (which ended on Sept. 28, 2024) indicate that its fortunes are turning around.
The company's fiscal Q1 revenue increased 6% year over year to $337 million, exceeding the higher end of its guidance range. This impressive turnaround was driven by a 23% year-over-year jump in Lumentum's revenue from the cloud and networking business, where the demand for its connectivity modules is increasing thanks to the growing deployment of AI infrastructure.
For instance, Lumentum management pointed out in August 2024 that its externally modulated lasers (EMLs) -- a type of technology that's used for high-speed data transmission through fiber optic cables -- have been selected for deployment by multiple cloud and AI customers. The company achieved record shipments of EMLs during that quarter and added that it also secured enough bookings that it plans to fulfill through fiscal 2025.
More importantly, Lumentum believes that the demand for EMLs could increase by 30% to 40% in the current fiscal year, and the company is boosting its capacity substantially to address that demand. Thanks to AI deployment, management expects Lumentum's addressable opportunity in the data center photonics market to jump to $16 billion in 2028, from $4.5 billion in 2023.
Not surprisingly, analysts expect Lumentum's growth to remain healthy in the current quarter. The company has guided for $390 million in revenue for fiscal Q2 at the midpoint of its guidance range, which would be a jump of 6% from the year-ago period's figure. The bottom-line forecast of $0.35 per share suggests that its earnings are on track to improve from the year-ago period's reading of $0.32 per share.
However, don't be surprised to see Lumentum exceeding expectations once again when it releases its next set of results in 2025 on account of its strong backlog and the fast-growing nature of the AI networking market.
Stronger growth could lead to more upside in 2025, and beyond
We have seen that Lumentum's revenue and earnings declined significantly in fiscal 2024 to $1.36 billion and $1.01 per share, respectively. However, the forecast for the next two fiscal years remains solid.
LITE Revenue Estimates for Current Fiscal Year data by YCharts.
The chart above tells us that Lumentum's earnings are expected to grow by 56% in the current fiscal year, followed by a 134% increase in fiscal 2026. Assuming the company manages to hit $3.70 per share in earnings over the next couple of years and also trade in line with the tech-laden Nasdaq-100 index, at 33 times earnings, its stock price could jump to $122. That would be a 47% jump from current levels, suggesting that investors who have missed this AI stock's rally so far can still consider buying it since it looks primed for more upside.
