A Look at Lumentum (LITE) Valuation Following R64 Optical Circuit Switch Launch for AI Data Centers

Lumentum Holdings (LITE) just rolled out the R64 Optical Circuit Switch, signaling its intent to seize fresh opportunities within AI data centers. If you follow the photonics industry, this move probably jumps out at you. Lumentum’s latest product targets lower-port-count applications, expanding on the company’s proven MEMS technology and reinforcing its commitment to providing high-performance, energy-efficient solutions. With the system set to demo at an influential industry event, it is clear that Lumentum wants to be seen as an essential player in data center innovation. This announcement adds new momentum to Lumentum’s story. After a slow start this year, shares have steadily pushed higher, climbing nearly 88% year-to-date and 149% in the past year. Recent product announcements and demo plans have helped keep sentiment strong, especially as investors weigh the company's ability to benefit from the global buildout of AI and telecom infrastructure. The longer-term performance shows substantial gains as well, suggesting that market participants are rewarding Lumentum’s focus on innovation and execution. With the stock now up sharply and the company showcasing a stream of new products, it prompts the question: does this rally still have legs, or is the market already banking on Lumentum’s next phase of growth?

Most Popular Narrative: 11.8% Overvalued

According to the most widely followed narrative, Lumentum is trading above its calculated fair value, suggesting investors have priced in significant optimism about the company’s future.

Early and accelerating customer adoption of next-generation modules (cloud modules, 200G+ EMLs), optical circuit switches, and co-packaged optics, backed by record orders and a growing hyperscaler customer base, provide clear, additive revenue streams. These are projected to materially increase total revenue and expand earnings over the next 12-18 months.

What is fueling this punchy price tag? The narrative hinges on a handful of bold analyst assumptions. Rapid expansion, escalating margins, and a projected profit surge are all factored into the valuation. Want to see the precise growth targets and the ambitious future profit-multiple underpinning this outlook? The full narrative breaks down the financial math driving this fair value estimate.

Result: Fair Value of $143.79 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks remain, including reliance on a small number of cloud customers and persistent supply constraints. These factors could limit Lumentum’s momentum if conditions shift.

Find out about the key risks to this Lumentum Holdings narrative.

Another View: Our DCF Model

While analysts see Lumentum as priced for optimism, our SWS DCF model offers a different perspective. It currently suggests the stock trades below its calculated fair value. Could market expectations and intrinsic worth soon come together?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lumentum Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Lumentum Holdings Narrative

If you have your own perspective or want to dig deeper into the numbers, crafting your own take is quick and straightforward. Do it your way

A great starting point for your Lumentum Holdings research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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