Introducing Lumentum Holdings Inc (LITE)
Lumentum was incorporated in 2015 and is headquartered in San Jose, CA. LITE manufactures and sells optical and photonics products on a global scale. Their two main segments are Components and Systems. Components is comprised of laser chips, laser assemblies, and line subsystem product lines. Systems includes optical transceivers and circuit switches. Their major customers are in AI/cloud including hyperscalers as well as network equipment / optical transceiver manufacturers that embed LITE components in their solutions.
With the build-out of data centers, LITE has seen significant tailwinds. Reporting earnings for their Q1 FY26 yesterday, the financials and story were both very impressive.
Revenue came in at 533.8M which was a record and was up 58.4% YoY. Adjusted Gross Margin was 39.4% (versus 37.8% LQ and 32.8% LY - an annual increase of 660 bps!). OpEx is decreasing as a % of revenue while Operating Margins continue to skyrocket: adjusted OM was at 18.7% versus 3% LY!
Adjusted diluted EPS was 1.10 vs 0.18 LY.
LITE has a solid balance sheet with a positive current ratio and greater assets than liabilities.
Revenue over the past few quarters has been:
337→402→425→481→534
Perhaps even more astonishingly, they just guided to 630-670M in revenue next quarter. This would be up 62% YoY and 22% sequentially at the midpoint and a significant acceleration! In their words, their growth is powered by AI demand “spanning our laser chips and optical transceivers inside data centers, as well as the interconnected long-haul networks that link them.”
Some of my highlights from the earnings call include:
3 major drivers of future growth expected:
- Cloud transceivers
- Optical circuit switches
- Co-packaged optics
Notably, of those 3 they are not even expecting #2 or #3 to contribute meaningfully to revenue even by next quarter (future ramping potential).
They said they are “…setting the stage for calendar 2026 to be another breakout year for laser chip shipments and solidifying our leadership in Indium Phosphide-based light sources for the data center”. They expect a ramp in shipment volumes in ultra-high-powered lasers in H2 2026 (calendar) and see opportunities to expand their customer base.
They already had all Indium Phosphide Wafers allocated to buyers and were supply constrained, but announced they managed to obtain better-than-expected yields with 40% more unit capacity in the next few quarters, which will translate to greater sales.
Overall, I feel the Pros strongly outweigh the Cons of this company. Revenue growth is steady and amazing with phenomenal guidance in a market segment that is experiencing significant tailwinds with AI build-out. LITE has strong tracks for future growth with 2 of 3 of their main drivers not even yet making meaningful contributions to their top-line. Margins are strong and improving, demonstrating operating leverage and profitability. Their balance sheet is steady.
I do want to keep a close eye on dilution as this has been creeping up and has been guided to continue to do so at least for next quarter. However, they appear to be using their resources efficiently as they continue to grow the business on multiple fronts and scale into 800 gig and 1.6.
They are up over 25% as of this writing, but I see a long runway ahead if they continue to execute at this clip.