Lumentum Holdings (LITE) just received a major vote of confidence from Wall Street as Mizuho initiated coverage with an “outperform” rating and a $290 high price target. The optical components maker is becoming a key player in building artificial intelligence infrastructure, with more than 50% market share in indium phosphide lasers that power advanced AI servers.
Mizuho analyst Vijay Rakesh believes the company will ride a massive wave as hyperscalers move from the current 400G and 800G bandwidth to 1.6T and 3.2T connections. This change is inevitable as copper cables reach physical limits in range and power consumption, forcing data center operators to opt for optical solutions. Lumentum’s laser revenue could more than double, rising from approximately $1 billion in fiscal 2025 to $2.2 billion in fiscal 2028, representing 54% of the company’s total revenue.
The growth story extends beyond traditional data center applications. Alphabet (GOOGL) (GOOG) is ramping up deployments of optical circuit switches, while Nvidia (NVDA) plans to use Lumentum lasers in its next-generation Rubin platform, launching later this year.
These design wins with industry leaders could add $100 million per quarter from hyperscalers by fiscal 2027 and another $50 million per quarter from Nvidia beginning in fiscal 2026. Mizuho forecasts 37% annual revenue growth and 74% earnings per share growth through fiscal 2028, making Lumentum one of the most attractive bets in infrastructure expansion of AI.
Lumentum Holdings achieved a highly successful first quarter with revenue increasing 58% year-over-year (YoY) to $533 million and operating margins expanding by 1,500 basis points. The optical components maker is capitalizing on strong demand for AI infrastructure as it generates more than 60% of total revenue from AI and cloud applications. Management forecasts sales in the fiscal second quarter (ending in December) at $650 million, reaching a milestone two quarters earlier than previously anticipated.
Better-than-expected progress in manufacturing yields and throughput will deliver approximately 40% more unit capacity in the coming quarters. This capacity expansion comes as the product mix is shifting toward higher-margin 200-gigabit EML lasers, which should make up 10% of the mix by March 2026. The company is also ramping up continuous wave lasers for internal use in optical transceivers, with 100 milliwatt versions entering full production in mid-2026.