Lumentum (LITE) just received a major vote of confidence as Nvidia accelerates its push into co-packaged optics.
GF Securities says Nvidia (NVDA) is scaling out co-packaged optics, or CPO, faster than expected, creating another potential growth driver for Lumentum. The company supplies laser chips and photonic components used in optical systems, putting it close to the center of the AI networking buildout.
More Top Stocks Daily: Go behind Wall Street’s hottest headlines with Barchart’s Active Investor newsletter.
The forecast is striking. GF Securities expects Nvidia's CPO switch shipments to reach 15,000 units in the fourth quarter of 2026, rising to 16,000 in early 2027 and 30,000 by mid-2027. For all of 2027, shipments could reach 100,000 units. This is Important to Lumentum, as any pulse in demand for optical networking can lead to further opportunities for Lumentum's pieces.
The big unknown for investors is if Nvidia's quicker-than-anticipated CPO uptake can sustain another push up for a stock that has rallied aggressively this year.
Lumentum Stock Is Riding the AI Boom
Lumentum's stock has soared in 2026, gaining more than 195% year-to-date (YTD), as investors have poured into companies benefiting from surging AI infrastructure spending.
The bull rally has been led by demand for optical elements to link larger clusters of very high-speed GPUs. Hyperscalers are creating larger AI data centers, where greater data information flow rates and efficiencies are needed.
But their stocks also have been hugely volatile. Supply concerns have constrained some shipments, as has the unprecedented share price surge, which led to concerns over whether it has priced in additional growth.
This puts Lumentum in a unique situation. While Nvidia's CPO ramp offers a significant opportunity to drive sales growth, its investors are paying a hefty valuation premium for that growth as well.
www.barchart.com Nvidia’s CPO Ramp Could Be a Major Catalyst
CPO combines optical components more closely with semiconductor packages, helping data centers move information at higher speeds while potentially reducing power consumption. Those advantages are increasingly important as AI clusters become larger and more demanding.
GF Securities sees Lumentum benefiting directly from that shift. The firm forecasts Lumentum's CPO laser revenue could rise from $427 million in 2027 to $750 million in 2028.
Near-packaged optics, or NPO, could become an even larger opportunity. GF Securities estimates Lumentum's NPO laser revenue could jump from $501 million in 2027 to $2.55 billion in 2028.
That is why Nvidia's CPO rollout matters beyond one product cycle. Faster adoption could translate into higher optical component volumes and give Lumentum another growth engine tied to AI infrastructure.
The Latest Quarter Shows Why Investors Are Excited
Lumentum's latest quarter results give investors plenty to cheer. In Q4, the company generated $1.01 billion in revenue, more than doubling from a year ago and extending its streak of year-over-year growth to eight straight quarters.
The increase was widespread throughout the company. Components' revenue grew 103% to $649.4 million, while Systems' revenue increased 123% to $356.9 million. Profitability also improved, as the gross margin climbed to 50% and the operating margin increased to 36.6%. The roughly 50% gross margin is a significant improvement on the company's earnings profile.
Lumentum reported a net income of $326.3 million for the quarter and an adjusted earnings per share of $3.23, over three times that of the same quarter last year.
On the balance sheet, Lumentum's free cash flow amounted to $196.2 million, and the company has also accumulated $2.74 billion in cash and short-term investments at the end of the period, which provides it with further financial flexibility.
Management anticipates the trend to persist through fiscal 2027 as well. Lumentum is projecting an increase of more than $150 million in sales for the first quarter, along with gains in profitability, as revenue for the period is expected to be in the neighborhood of $1.225 billion to $1.275 billion and adjusted earnings per share are projected to range between $4.05 and $4.35.
Wall Street Sees More Upside for LITE Stock
GF Securities is not alone in seeing further potential for Lumentum. Citi raised its price target to $1,400 from $1,200 and maintained a “Buy” rating. Bernstein initiated coverage with an “Outperform” rating and a $1,220 target, pointing to networking and optical companies as structural beneficiaries of AI infrastructure spending.
Overall, Barchart notes that 25 analysts rate LITE stock a consensus “Strong Buy,” with an average target of $1,149.40. The forecast implies a modest upside of around 6% from current levels.
In my opinion, the opportunity is increasingly tied to one question: how quickly Nvidia can scale next-generation optical networking. If CPO adoption accelerates as GF Securities expects, Lumentum could have another powerful source of demand. At the same time, the stock's sharp 2026 rally means investors are already pricing in substantial growth.
www.barchart.com On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
Nvidia Just Gave Lumentum Stock a New AI Catalyst What a 20-Year Deal With Amazon Means for Constellation Energy Stock How to Play DJT Stock as Trump Media Finally Files for TAE Merger FOMC Minutes, Interest Rates and Other Key Things to Watch this Week