JPMorgan sees more upside for this growing AI data center play
Lumentum Holdings is likely to see its shares rise as the company’s optical networking and related parts for next-generation artificial intelligence solutions boost sales more than previously expected, according to JPMorgan. The investment bank reiterated its overweight rating on Lumentum and hiked its 12-month price target to $950 from $565, implying 6% upside from Wednesday’s close. “We forecast the exceptional earnings growth pace to continue with the ramp in scale-up networking,” JPMorgan analyst Samik Chatterjee said Thursday in a note to clients. “We are raising our estimates for Lumentum following the Investor Briefing as well as meetings in and around OFC…which collectively delivered a stronger-than-expected level of forward visibility across various growth drivers.” OFC is the Optical Fiber Communication Conference and Exhibition. Lumentum appears to be courting more customers for its optical circuit switches — a major source of potential upside for the stock, JPMorgan said. Optical circuit switches are devices that determine the best path for optical signals to travel between fiber-optic cables. The technology supports networking in AI hyperscale data centers, enabling potentially quicker and more energy-efficient data transmission. Lumentum has said that its optical circuit switches (OCS) are on track to reach $400 million in sales in the second half of 2026, followed by an acceleration of the business in 2027. Its annual run rate exceeds $1 billion. But Lumentum’s OCS technology likely has “further runway than the current target reflects,” according to JPMorgan. “The currently outlined revenue trajectory is largely supported by a new multi-year, multi-billion-dollar agreement with a large OCS customer, which is expected to account for half the revenue in [the second half of 2026],” Chatterjee wrote. However, “additional upside drivers not currently embedded also include further customer wins as well as execution around a new [rack unit] form factor, the latter of which could drive a material inflection in the volume opportunity if miniaturization of the faceplate and port density proves successful.” In addition, Lumentum’s electro-absorption modulated lasers (EML) and data center interconnect (DCI) offerings are likely to attract more business than management has predicted, according to JPMorgan. EML capacity expansion is already tracking ahead of expectations, according to Chatterjee, while demand in the DCI market, which has few providers, remains robust. Lumentum has also shown signs of “more disciplined” growth in operating expenses, which will also help lift the stock, JPMorgan said. The investment bank’s latest call aligns with the Wall Street consensus. Of 24 analysts covering Lumentum, 19 have a buy or strong buy on the stock. Shares have surged 143% since the beginning of this year amid the ongoing AI data center boom, and are 1,400% higher over the past year. LITE YTD mountain Lumentum Holdings has jumped 143% in the year to date.