Lumentum (LITE.US) faces increasing supply-demand gap for its products. Several institutions are bullish on the growth driven by AI optical communication demand.

The optical communication and photonics technology company Lumentum (LITE.US) stated that the demand for its products continues to exceed supply capabilities. Several Wall Street institutions subsequently issued optimistic views, believing that the construction of AI infrastructure is driving the industry into a new cycle of high prosperity. Analysts Ryan Koontz and Jeffrey Hopson of Needham pointed out that the company is accelerating the expansion of its indium phosphide wafer factory and optical module production capacity by focusing on capital expenditures, and has secured long-term procurement agreements with customers. Analysts believe that the backlog of orders for optical switch systems and co-packaged optical lasers, with a scale of several billion dollars, is expected to significantly boost revenue growth starting in the second half of 2026 from the current negligible contribution level. Needham maintains a "buy" rating on Lumentum with a target price of $104. They continue to list it as a "preferred target." The institution noted that Lumentum has maintained this status for 16 consecutive months, and the company has a significant advantage in the field of optical communication and photonics technology required for AI, cloud computing, and next-generation communication networks. After the earnings announcement, Needham raised its profit forecast for the company. The institution expects Lumentum's revenue to reach $29.9 billion in the 2026 fiscal year, higher than the previous forecast of $29.2 billion; revenue for the 2027 fiscal year has been raised from $50 billion to $55 billion. At the same time, EPS expectations for the 2026 fiscal year were raised from $7.97 to $8.38, and for the 2027 fiscal year from $16.47 to $17.68. Morgan Stanley analysts stated that Lumentum's leading position in the field of electro-absorption modulated lasers (EML) and pump lasers enables the company to continue to increase prices and expand profitability in an extremely tight supply environment. The analysts pointed out that the current market demand for products continues to grow, and the company's pricing power is expected to remain strong in the short term, while the large-scale deployment of new products such as optical switches and co-packaged optics has not truly begun, indicating further growth potential in the future. As a result, Morgan Stanley raised Lumentum's target price from $710 to $900 while maintaining a "hold and observe" rating. GF SEC pointed out that the company's management emphasized that the supply-demand imbalance is still widening, with supply capabilities currently about 30% lower than demand, even though the company plans to increase capacity by about 50% year-on-year. The market remains undersupplied. Analysts at the firm believe that key products such as EMLs, pump lasers, and narrow linewidth lasers are essentially "sold out," with pump lasers being an even more severe bottleneck than EMLs. Although the company is expanding capacity through long-term supply agreements and additional wafer factory investments, the pace of demand growth is still faster than supply expansion, so the company still needs to allocate products to customers. GF SEC maintains a "buy" rating on Lumentum with a target price of $1168. The optical communication industry chain has recently been attracting attention from the market due to the surge in AI data center construction. Lumentum's competitor Coherent (COHR.US) rose by about 1% in early trading on Wednesday, while Fabrinet (FN.US) rose by about 2%.