Shares of Micron Technology and Sandisk have clocked phenomenal returns over the past year, primarily due to the mission-critical role of the memory chips produced by them for running artificial intelligence (AI) workloads in data centers.
Faster memory chips and larger storage help solve a key bottleneck in AI data centers by enabling the rapid transport of large volumes of data to data center accelerators. As a result, accelerator chips, such as graphics cards and custom processors, don't have to sit idle and waste energy. However, a closer look at the AI infrastructure ecosystem makes it clear that memory isn't the only bottleneck impeding accelerator performance.
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Meet the fast-growing company winning big from the next big AI bottleneck
The rapid transport of data has created an incredible demand for optical networking components, which use light to quickly transmit massive amounts of data over long distances via fiber-optic cables. Investment banking and brokerage firm Rosenblatt Securities estimates that optical component companies could increase production capacity by 12x between 2025 and 2030.
However, even that won't be enough to meet the booming demand for optical components. Rosenblatt predicts that supply will trail demand by 50% in 2030 despite the massive increase in production through the end of the decade. This explains why optical and photonics components supplier Lumentum Holdings (LITE -1.43%) has been experiencing incredible growth in revenue and earnings.
NASDAQ: LITE
Key Data Points
The company released its fiscal 2026 fourth-quarter results (for the three months ended June 27) on Aug. 11, and its shares popped more than 13% the following day. Lumentum easily crushed analysts' expectations, and its guidance makes it clear that the company's red-hot growth momentum is sustainable.
Lumentum's revenue shot up by 109% year over year to just over $1 billion in fiscal Q4, exceeding the $988 million consensus estimate. Its bottom-line growth, however, was the icing on the cake. Lumentum's non-GAAP operating margin increased by 21.6 percentage points year over year in fiscal Q4 to 36.6%. As a result, the company's adjusted earnings per share rose almost 3.7x year over year to $3.23, exceeding the consensus estimate of $2.97.
Lumentum expects its revenue in the current quarter to increase at a stronger pace of 134% year over year to $1.25 billion. The company anticipates adjusted earnings per share to jump from $1.10 in the year-ago period to $4.20 per share in the current quarter, which would be an improvement over the growth it clocked last quarter.
Investors can expect Lumentum's earnings to continue growing at such healthy rates over the long run amid the ongoing supply crunch in optical components. An important point worth noting is that Goldman Sachs expects the optical networking market's revenue to increase by a whopping 9x to $154 billion by 2028.
This should pave the way for robust top-line growth at Lumentum in the long run, while supply constraints should ensure that its margins continue to rise, fueling further earnings growth.
Lumentum stock can keep soaring despite jumping substantially this year
Lumentum stock has clocked impressive gains of 140% in 2026, as of this writing. However, the company's terrific earnings growth potential suggests this AI stock is poised for further upside. Lumentum's non-GAAP earnings per share increased by just over 4x in fiscal 2026 to $8.67. The following chart shows that Lumentum's earnings are on track to grow impressively over the next three years.
Data by YCharts
Specifically, Lumentum's earnings are projected to increase by 5.3x in just three years (from fiscal 2026 levels). That translates into a compound annual growth rate (CAGR) of 74%, which is much higher than the 30% and 14% earnings growth that S&P 500 companies are expected to deliver over the next two years.
Lumentum trades at 42 times forward earnings, which is double the forward earnings multiple of the S&P 500 index. However, that valuation is justified by its outstanding growth. Assuming it continues to trade at 43 times earnings after three years and its earnings per share reach $45.98, in line with the consensus estimates shown in the chart above, its stock price could jump to $1,977.
That suggests potential upside of 113% over the next three years, which is why investors looking to add a growth stock can still buy Lumentum, as it could continue to skyrocket due to favorable demand-supply dynamics in the optical components space.
