Lumentum (LITE) delivered a stellar beat-and-raise December quarter final week that has estimates hovering.
Non-GAAP earnings of $1.67 per share beat the Zacks Consensus Estimate by 18.68%, and have been up practically 300% from the year-ago quarter.
Non-GAAP revenues of $665.5 million, which beat the consensus mark by 1.85%, elevated 24.7% on a sequential foundation and 65.5% on a year-over-year foundation.
The expansion showcases the energy of the corporate’s plans for each optical parts and methods in a world the place NVIDIA (NVDA) is constructing next-gen GPU rack-scale datacenter architectures based mostly on silicon photonics connectivity, switching, and networking.
Product-wise, revenues from the Elements section contributed 66.7% to complete revenues within the fiscal second quarter. The determine elevated 68.3% yr over yr to $443.7 million. System revenues contributed 33.3% to complete revenues. The determine elevated 60.1% yr over yr to $221.8 million.
LITE Q3 2026 Steering Ignites Estimates
For Q3 fiscal 2026 (ends March), LITE expects non-GAAP revenues between $780 and $830 million vs a previous consensus nearer to $700 million. The corporate expects non-GAAP working margin within the vary of 30% to 31%, vs expectations of twenty-two%, and non-GAAP diluted earnings between $2.15 and $2.35 per share, vs a previous consensus underneath $1.60.
And if any investor or analyst was questioning if this blistering tempo was going to decelerate any time quickly, administration mentioned this throughout the convention name…
“Our ahead steering requires over 85% year-over-year income progress, but we’re solely on the beginning line for 2 substantial alternatives: optical circuit switches (OCS) and co-packaged optics (CPO).”
And analysts are already reflecting this optimism in This autumn FY’26 (ends June) with projected progress of 87.5% to $900 million.
The complete-year 2026 gross sales consensus moved to $2.9 billion, representing over 76% annual progress. And FY’27 is already projected to come back in close to $4.7 billion, for a 61.5% advance.
As you’d count on, these gross sales ramps, mixed with bettering margins, are driving the underside line estimates increased for each this yr and subsequent.
A month in the past, the FY26 EPS consensus was at $5.67 and FY27 at $8.29. Right this moment they stand at $7.63 and $14.11, representing progress of 270% and 85%, respectively.
How NVIDIA Ignited Demand for Optical Interconnect
I will admit: I used to be late to the optical occasion. And I mustn’t have been since I comply with NVIDIA so intently. Classes realized. In December, I profiled Lumentum optical peer Coherent (COHR). Here is what I wrote…
We all know NVIDIA is a giant buyer of Credo Know-how (CRDO) AECs as a result of CEO Jensen Huang is a giant fan of copper for connecting GPUs inside rack-scale architectures and Credo has repeatedly showcased its AECs in reside demonstrations on the NVIDIA GPU Tech Convention (GTC). These demos function Credo’s AECs connecting servers and switches on to NVIDIA H100 GPUs to create disaggregated, rack-scale GPU clusters.
However at GTC in March [2025], Jensen introduced a collaboration with a purely optical participant, Coherent.
One large driver of investor enthusiasm that helped drive COHR shares from under $70 to over $190 this yr was their collaboration with NVIDIA introduced at GTC in March.
Coherent and NVIDIA will develop silicon photonics networking switches utilizing co-packaged optics (CPO). This ecosystem will enable AI factories to attach thousands and thousands of GPUs.
NVIDIA nonetheless makes use of copper wiring inside Blackwell NVL72 rack-scale methods to attach GPUs to one another, however to “scale out” throughout the datacenter Jensen Huang acknowledged the ability and velocity of optical options to attach many racks collectively for the bottom latency.
Thus NVIDIA has a number of connectivity and networking methods that use optical and photonics options and they are often categorized into two primary areas: Interconnect Merchandise, together with Infiniband and Ethernet protocols, and the upcoming Co-Packaged Optics, like Spectrum-X Photonics Switches.
LITE and TSMC: Co-Design for the Win
Lumentum and Taiwan Semiconductor (TSM), aka TSMC, aka THE superior chip foundry, are two of essentially the most crucial “ingredient” companions in NVIDIA’s transfer towards Co-Packaged Optics (CPO).
Their collaboration solves a large physics downside: as AI clusters develop to thousands and thousands of GPUs, conventional copper wiring and pluggable transceivers eat an excessive amount of energy and generate an excessive amount of warmth.
By shifting optics into the chip bundle, they scale back energy consumption by roughly 3.5x and improve sign integrity considerably. Right here is how they work collectively to construct this for NVIDIA’s next-gen platforms like Quantum-X and Spectrum-X.
However TSMC has to offer the “packaging” that enables electrical energy and light-weight to reside on the identical chip. A significant problem with CPO is that lasers are heat-sensitive. In case you put a laser straight subsequent to a sizzling GPU or Swap ASIC, it can fail.
TSMC’s Compact Common Photonic Engine (COUPE) is a 3D packaging course of. It permits NVIDIA to stack the Electrical IC (the mind) straight on prime of the Photonic IC (the eyes).
Me and the Analysts: Will not Get Fooled Once more
After I understood this built-in circuit of interdependency, I lastly purchased Lumentum shares in January at $350 on the pullback from $400. Most analysts have been nonetheless too timid with estimates and the excessive value targets have been solely calling for $450. Heck, Morgan Stanley thought $350 was truthful!
After earnings, LITE may solely handle to kiss $500 and retreat. So I offered a few of my place at $485, considering it could have gone too far, too quick.
On reflection, I used to be silly to ever doubt the danger urge for food for Lumentum (LITE) based mostly solely on the weak reception for its stellar report that day.
And it ought to have been apparent as quickly as the subsequent day when every thing was falling away from bed on Feb 5 as a result of LITE examined the foolish post-earnings low at $426 and reversed increased with a giant fats engulfing candle to shut above $500!
Then Friday, because the upgrades and delayed reactions poured in, she gaps as much as $540 and closes above $550.
They virtually received me once more with two kisses of $600 on Monday and Wednesday this week, after which one other about-face. However I am not falling for it this time.
I am holding my shares for the complete realization of what NVIDIA (NVDA) is constructing for the subsequent 5 years, the place optical parts are required at a number of levels and optical suppliers like LITE and Coherent (COHR) could be concerned at totally different levels of design and fabrication with CPO.
In the meantime, here is the Avenue herd gathering round $550 with their PTs…
Rosenblatt $580
JP Morgan $565
Citi $560
Needam $550
Susquehanna $550
B. Riley $526
Mizuho $525
BofA $520
Stifel $480
Barclays $475 (Equal-Weight)
UBS $455 (from $215! and stays at Impartial)
See ya subsequent quarter when Lumentum surprises once more they usually increase their PTs to $650.
Disclosure: I personal NVDA, TSM, CRDO, and LITE shares for the Zacks TAZR Dealer portfolio.
Kevin Prepare dinner is a Senior Inventory Strategist for Zacks the place he runs the TAZR Dealer portfolio.
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Lumentum Holdings Inc. (LITE) : Free Inventory Evaluation Report
NVIDIA Company (NVDA) : Free Inventory Evaluation Report
Taiwan Semiconductor Manufacturing Firm Ltd. (TSM) : Free Inventory Evaluation Report
Coherent Corp. (COHR) : Free Inventory Evaluation Report
Credo Know-how Group Holding Ltd. (CRDO) : Free Inventory Evaluation Report
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
