Let’s talk about Lumentum - LITE

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I bought LITE recently. I know I’m late, but here’s my thought:

  • Industry is moving to optics, because AI data center is moving to higher data rate. at higher data rate beyond 1.6T, optic is inevitable due to physics. There will be more opportunities for scale up and scale out for optic.

  • Lumentum is the industry leader in optic (along side other optic companies). They had a design win with Nvidia CPO.

  • CPO is still a risk, but even if it fails, industry will still move to some form of optic, and Lumentum can provide the laser module used optic connection.

  • LITE guide for $2B revenue per quarter by 2028 (18 months), this translates to $80B market cap if company has P/S of 10x which is about 40-45% upside from today.

  • CEO said if they get the recently acquired manufacturing site to ramp up the production in 2028, they can generate additional $5B ARR. This translates to $130B market cap or 2.3x from today by 2028-2030. This hasn’t taken in account of CPO for scale up.

  • I follow ALAB and CRDO closely, and both of them said they are working on optic products which will be available in 2028.

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There is no question that Optics will continue to move into the ai Datacenter. The question is how long of a runway does LITE have for growing revenue and FCF, and what is needed to justify it’s current valuation? What does the competitive landscape look like 18 months out? What does a reverse DCF look like? (I don’t know because I question how competitive this market will be in 18 months, never mind 10 years).

And why are they using the term ARR? They have LTAs but ARR is not a term we generally use in the hardware business despite having Long Term agreements (LTAs). These are not the same and I don’t see Micron using this term or Nvidia using this term, despite their LTAs being massive and pretty rock solid.

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